_Europe’s occupational markets resilient
Over the last 18 months, a spectrum of geopolitical events, including Brexit, the elections in the US, France, the Netherlands, the UK and Germany have created uncertainty in the western world. The finance and capital markets have reacted to the events with great volatility. On the other hand, Europe’s occupational markets seem to have come off unscathed.
Geopolitics play a big part in influencing investor sentiment and market activity. The prospects of monetary policy also impact decisions. When a negative event takes place, investors adopt a more cautious approach and target safe haven markets to deploy capital, as was the case following Brexit. The UK’s commercial investment volumes fell sharply, while Germany registered stellar performance and took the leader board in H1 2017.
Latest Q3 investment figures show that UK investment volumes have rebounded, primarily driven by the sale of trophy assets, particularly to high net worth investors from Hong Kong. UK institutional investors have been more active in continental Europe than in the UK, in view of the riskier proposition since its decision to leave the EU. In contrast, Germany investment slowed although this was a blip most likely due to a lack of available product. France is yet to see a wave of capital, despite the election of Emmanuel Macron, which was purported to boost investment volume although it may take a few quarters for deals to materialise.
On the occupational markets, leasing activity in European office markets has been robust. Aggregate office take-up in Q3 2017 in the markets monitored by Knight Frank is now 7% higher than a year ago. Western Europe has been at full throttle, with the German cities, London, Madrid and Milan registering solid activity.
Even against the backdrop of the German Federal Election in September this year, it was full steam ahead for many of Germany’s occupier markets. Indeed Frankfurt had one of its strongest quarters in a decade, despite just two deals being Brexit-related. The story was much the same in Berlin, where leasing activity soared. Central London take-up also rose significantly, with the West End registering the highest quarterly volume on record, on the back of the Brexit spectre.
While in Paris, the momentum at the end of 2016 and the beginning of 2017 tapered. Île-de-France had one of the quietest second quarters on record, which was partly attributed to the uncertainty surrounding the French presidential and legislative elections. But since President Macron’s election in May, France’s economy has shown signs of improvement. Business sentiment has lifted and occupier activity has strengthened, with Q3 take-up returning to the average.
In the Netherlands, after being without a new government since the March parliamentary election, a four-party coalition agreement was reached taking the longest time in Dutch history. Even against this backdrop, occupier activity in the Dutch cities did not wane. In fact, occupier activity was up, with Amsterdam registering one of its strongest H1 periods in nearly a decade.
Despite heightened levels of geopolitical uncertainty, occupier activity has remained high across Europe’s office markets. While these events may cause some occupiers to pause for thought, occupiers are less responsive to these events given their longer-term approach to business decision-making. In the current economic climate, corporate occupiers are not holding back on business growth and remain focused on driving optimisation within the existing corporate footprint.
Read more in our latest European Quarterly Outlook Q3 2017