Shoppers cross the road in Oxford Street, London, Britain. Picture: REUTERS
Shoppers cross the road in Oxford Street, London, Britain. Picture: REUTERS

Germany has eclipsed the UK to become Europe’s most popular destination for property investment since the Brexit vote.

In the third quarter of 2016, more investment flowed into German real estate than the UK for the first time in four years. About €13.6bn was committed to the German market against €10bn for the UK, according to data from Real Capital Analytics.

Meanwhile, a survey of 800 leaders in Europe’s property industry found that Berlin, Hamburg and Frankfurt were viewed as the top three prospects for real estate investment among European cities — with London languishing at number 27.

London’s decline came after the UK’s vote to leave the EU prompted investors to reconsider whether British bricks and mortar could still be considered a safe haven, the report by the Urban Land Institute and PwC, the professional services firm, found.

"The fallout from the Brexit vote gives an extra boost to the already-strong German real estate market," said Lisette van Doorn, European CE of ULI.

"With considerable political and economic uncertainty in Europe, many real estate investors are willing to sacrifice some yield in return for lower risk. In this risk-off environment, the stability of German cities becomes even more attractive."

About 90% of those surveyed said UK property values would decline in the coming year.

Meanwhile, real estate investment trusts (Reits) in Germany and Scandinavia had risen since the Brexit vote to trade at premiums to the value of their assets, a sign that investors felt their cash was safer there, the report said.

In comparison, UK Reits were trading at discounts of about 20% to net asset value, according to Jefferies, the investment bank.

However, the shift in Germany’s favour took place in a context of declining real estate investment across Europe. The total value of transactions in the third quarter was down 38% from a year earlier, at €46bn; investment into the UK dropped 51%, according to the RCA figures.

Even as it took over the top spot, Germany saw a 34% drop in real estate investment from a year earlier, although the previous year’s total was boosted by corporate takeovers.

The hunt for German investments had helped boost smaller cities in the country: Leipzig, for example, had attracted more than €1bn of investment so far this year, a record for an east Germany city, RCA said.

International political turbulence, including forthcoming elections in France and Germany, was the main worry among property investors, according to the ULI/PwC survey, along with concerns about migration and terrorism.

Analysts have also suggested that the current property cycle may have peaked. Prices for core real estate — the properties most in demand — are "considered too high in many markets", ULI said.

© The Financial Times 2016

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