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Investment potential in European cities

July 8, 2021

Investment potential in European cities is quite connected.

The consequences of the coronavirus pandemic are leading investors to readjust their investment focus. In the wake of Brexit and the associated uncertainty regarding economic development, office locations that offer an alternative to the once almighty London are already in demand. Wüest Partner has rated 30 European cities to identify those urban areas where the prospects for office-sector investments have improved – and those where the outlook has deteriorated. 

Methods used

Wüest Partner looked at 16 key performance indicators to draw up its ranking. The operating assumption behind the study was that economic resiliency during the Covid-19 pandemic is higher in those cities that have managed to keep excess mortality in the populace low. Another factor is the extent of government support programmes for the economy. Likewise, the economic performance of an urban area was taken into account in the rating due to the close correlation between this indicator and investment volume. The share of people in each city who are employed in promising fields with a positive outlook for the future was also factored in. As a result, the prospects for those cities with a high percentage of their populace working in the information and communications sector, for instance, have improved significantly over the past few months. In addition to these variables, further factors that reflect the current specific appeal of the real estate market – such as vacancy rates, rental prices, changes in rental prices, the absorption of newly completed space and real returns compared to the yields on the respective government bonds – were included in the calculation. 

Investment potential in Europe is quite divers.

Investment potential: Berlin tops

Three major German cities – Berlin, Munich and Frankfurt – have earned a position in the top ten of the investment potential ranking, with Berlin and Munich taking the top two spots. They are followed by Stockholm, Oslo, Amsterdam, Helsinki, Rotterdam, Zurich, Frankfurt and London. 

According to the rating, Berlin is therefore the most attractive city for investments in the office real estate market at the present time. The major metropolitan area in Germany’s east features a comparatively low vacancy rate of 2.3% and strong absorption of new space being added to the market. Moreover, the share of the job market accounted for by industries with a bright future is well above average, and the office space market offers a relatively wide range of options for entry-level investment on account of its sheer size. 

With Munich ranked second and Frankfurt taking ninth place, three German cities are among the top ten. At 3.3%, the vacancy rate in the Bavarian metropolis is only slightly higher than in top-rated Berlin. The share of people working in high-growth industries, however, stands at 18.7% – around six percentage points lower. Frankfurt reports the highest rents of any major German city in the study, adding up to 530 euros per square meter a year. 

Rotterdam rockets up

In comparison to the other urban areas in Wüest Partner’s ranking, Rotterdam has climbed 15 spots to seventh place. The Dutch seaport has seen stable space absorption, and the initial returns are higher than might otherwise be expected based on the country risk score. Investment potential is therefore particularly good at the current time.

London only tenth

The British finance centre London barely made it into the top ten, with the UK’s economy having been particularly hard hit by the effects of the coronavirus pandemic. Unemployment has risen sharply, reducing user demand for office space. What is more, the uncertainty associated with the consequences of Brexit are weighing down the location’s economic prospects. However, the share of people working in promising sectors with a bright future is very high, offering a glimmer of hope.

Further information

More detailed analyses can be found in the «Immo-Monitoring» 2021, spring edition.