A first glance suggests there were no major changes in the European investment market in 2018, with the investment volume being roughly the same as in the previous year at around EUR 264bn. However, considerable differences emerge when one compares the individual markets. In the UK, the impact of Brexit is becoming increasingly evident, leading to a decline in the value of British transactions in 2018 by around 10% year-on-year. The Netherlands and Spain were also unable to match their previous year’s figures. Germany, meanwhile, saw a record year in 2018, with investment totalling more than EUR 60bn for the first time. France also had an excellent year, posting a rise in investment volume of around 10%.
Despite ongoing high demand for real estate investments due to the continuing lack of alternative options and persistence of low interest rates, tensions in the global economy are holding back the European investment market in 2019. The unresolved trade disputes between China, the US and Europe, continuing uncertainty around Brexit – now under the leadership of Boris Johnson – and the generally weaker growth of the global economy are resulting in softer underlying momentum, although activity levels are still very strong. Lack of product supply is also acting as a constraint on investment volumes. In the first half of 2019, there was significant divergence across the regional German investment markets. While Frankfurt posted shrinking transaction volumes, Berlin reported record figures. It will be interesting to see how things pan out in the second half of the year.
The new CMS European Real Estate Deal Point Study 2019 now includes more than 1,500 transactions. Compiling the study involved comparing the transactions on which we advised in the period 2010 to 2018, enabling us to highlight developments and trends.
The key findings are:
- Sellers continued to benefit from market buoyancy through purchase price adjustments and earn-out clauses. Provisions for subsequent purchase price adjustment have been on the rise since 2016. This is in part due to the further increase in the number of development projects.
- The high proportion of financially strong institutional investors on the buyer side continued to make itself felt: for the fourth consecutive year, the share of transactions in which no steps were taken to ensure the buyer met its financial obligations stood at around 50%.
- The proportion of transactions with de minimis and basket clauses was slightly below the previous year’s level in 2018. The upward trend in sellerfriendly de minimis and basket clauses seen over many years has thus been curbed somewhat.
- The share of transactions with a cap on the seller’s contractual liability likewise declined. Having said that, a seller-friendly cap provision was included in well over half of all transactions.
- Buyers also did well in terms of warranty arrangements: in 2018, more emphasis was placed on objective guarantees (i.e. liability regardless of whether the seller is aware of the circumstance), while the proportion of agreements in which subjective guarantees alone were agreed fell slightly.
- With regard to limitation periods, on the other hand, the familiar seller-friendly market environment was increasingly apparent again. Short, seller-friendly warranty limitation periods of less than 18 months were agreed in about a third of all deals.
The market response to our study indicates that it can be a valuable tool when preparing for contract negotiations. Any feedback you may have is very welcome.