Property investors in Asia warm to continental Europe, and it’s not just because of Brexit

Asian investors, including those from mainland China and Hong Kong, are increasingly shifting their attention to continental Europe as an investment destination, according to analysts.

Low interest rates in the Eurozone, and what some say is an ongoing recovery in the economy have bolstered investor interest in the region.

The trend is also partly driven by aversion to risks associated with the Brexit impasse in the UK. In recent times the UK property market has received the largest share of foreign investment in Europe.

“Investors are focused on the positives in European markets – debt costs are very low as the European Central Bank (ECB) has held interest rates at very low levels,” said Liam Bailey, partner and global head of research at Knight Frank.

Last month, the Frankfurt-based ECB kept its key interest rates unchanged, with the marginal lending rate at 0.25 per cent, the main refinancing rate at 0 per cent, and the overnight deposit rate at negative 0.4 per cent.

“The European markets took a long time to recover after the financial crisis and investors have seen a value opportunity by investing in these markets at this stage of the cycle,” Bailey said, adding that Knight Frank sees positive prospects for cities such as Paris, Berlin, Lisbon and Madrid.

Xavier Hunter, head of real estate practise at law firm Linklaters in Hong Kong, said Asian investors are showing increasing interest in central Europe and other non-traditional areas for investment.

“I think it's really started to get traction early last year. Asian investors began looking beyond the traditional markets of Paris, the big seven in Germany, and the UK, and Brussels to other locations in Europe, so the clear example of this is a migration of increasing interest or focus into central Europe,” Hunter said.

Among notable investments in the first four months of the year, Singapore-based First Sponsor bought the Westin Bellevue hotel in Dresden, Germany for a reported US$55 million, while South Korea’s Hanwha Investment & Securities acquired Penta Real Estate’s 80,000 sq m office in Prague for more than 250 million euros (US$280 million).

In 2017, investment from China, Hong Kong and other Asian sources into continental Europe totalled US$21.45 billion, nearly three times the US$7.55 billion the previous year, data from Real Capital Analytics showed.

In 2018, investment from Asia totalled US$12.5 billion. Still, the figure was 66 per cent higher than 2016. In the first quarter of this year, Asian investors were behind US$925.27 million worth of real estate investment in continental Europe.

Terence Tang, managing director, capital markets and investment services for Asia at Colliers International, said uncertainty over Brexit had dampened investor enthusiasm for the UK.

“Brexit is giving people a reason to be cautious of UK real estate and because of that uncertainty, that pushed investors to look at markets that can provide greater certainty. I think a lot of investors are looking at Germany, and France and these are two markets that will benefit because of Brexit,” said Tang.

Asian capital is “not actively pursuing opportunities in London at this point,” he said.

Before the Brexit referendum in June 2016, it was common for a quality London property to attract at least five buyers and multiple rounds of bidding.

“Today, the number of bids has decreased and the seller will be happy with just one round of biding,” Tang said.