Spain has made it back onto the list of Europe's "Top Five" investment destinations for the first time since 2010.
Research published by Real Capital Analytics (RCA) shows that investors chose countries in Europe with smaller economies rather than invest in 'preferred markets' such as the UK.
Seeking affordability and investment value, seasoned investors are taking advantage of the security of property as an asset class in countries where the best value can be found, where property prices are at the lowest since the financial crisis.
According to RCA, there was an increase of 183% in property transactions in Spain during the first quarter, adding up to €1.4 billion during Q1 2014. Netherlands also showed an impressive start to the year with an increase in property transactions of 90%, adding €1.3 billion.
Investment appetite for commercial property showed signs of slowing down during the first 3 months of 2014, after 5 quarters of consistent growth. Simon Mallinson, RCA's Managing Director says that the loss of investor appetite for commercial property was due to the attractive returns found with assets in the core secondary property markets:
"Investors are frustrated by the intense competition for a shrinking pool of assets. This situation has forced many to re-think their investment strategy, helping revive peripheral European markets, where pricing of prime assets is still attractive and stimulate demand for secondary assets or location in core markets."
Figures from the RCA report reveal that although property transactions in Europe dropped by 10% from their 2012 Q1 values, the improved investment interest from the previous quarters put the investment volumes in the annual period ending March 31 in a strong position, showing a year-on-year increase of 17%.
The UK, Germany and the Nordic region showed a significantly reduced demand in the retail property market. The demand for affordable properties in regional markets of the UK, Germany and France has risen, with the high-end property market in the UK seeing the highest volume of transactions.
Investors who bought into real estate at the lowest point of the market have been taking profits sooner than they expected which illustrates how far the market has moved as low interest rates and signs that the worst is probably over for European economies has stimulated interest in real estate markets, in particular Spain.
"We continue to expect a steady growth in transaction activity this year as Europe's markets gradually return to some normality," says Mallinson.
In 2013, investment in Spain from funds and private equity firms more than doubled to 13.9% with 37% going into real estate. Private equity firms such as Blackstone group and institutions like Goldman Sachs have been very active in the property market in Spain, buying apartment blocks and social housing developments.
The domestic market in Spain is still struggling and with tightened mortgage lending criteria preventing at least 30% of employed Spaniards from entering the property market, it will be a while before the market sees recovery.
The foreign market shows continued signs of a revived appetite for Spanish property and as confidence in European property returns, it is likely to remain the investment of choice for the long term.
- Tuesday 27 May 2014