Property investors are shifting focus – from mature western European markets, where the froth is coming off, to central and eastern Europe, according to CBRE's Investor Intentions Survey 2016.

“The stand-out finding in the 2016 survey is how much more widely investors are looking across Europe,” said the property adviser. “Asked which country they thought most attractive for investment, 42 per cent of respondents picked the top three countries – UK, Germany and Spain.

“But in 2015 that statistic was 61 per cent and in 2014 these top three choices accounted for 70 per cent of replies. This is also evident in the cities that investors think are most attractive for investment.”

As a result, CBRE reports a significant improvement in investor sentiment towards central and eastern European (CEE) markets and a big increase in the numbers picking countries and cities in this region as the “most attractive”.

“It looks as though pricing may be the driver for this,” says CBRE. “The second half of 2015 saw prime yields in continental western Europe fall very sharply, converging with earlier falls in the UK. This has left behind yields in CEE markets and the yield gap between CEE and western Europe has increased markedly.

Alternative sectors

“The search for yield also shows through in sector choice, with 56 per cent of our respondents already invested in one or more ‘alternative’ sectors and 57 per cent actively looking in one or more of these sectors.”

In the survey, CEE markets saw their proportion of investor preferences rise from 6 per cent in 2015 to 23 per cent in 2016. Poland, for example, jumped from 2 to 9 per cent.

“The findings of our latest EMEA investor survey are consistent with what we are experiencing in the Irish market at present,” says Johnny Horgan, head of capital markets at CBRE Ireland. That is, a “strong appetite continuing to prevail for prime investment opportunities but clear evidence of investors’ attitude to risk changing in line with global macro-economic concerns.

“The fact that almost half of the investors surveyed say they expect to spend more in Europe over the next 12 months is encouraging,” Horgan says. “Investors are continuing to seek out opportunities in the Irish market, but are clearly being more selective.”

Germany most popular

Western European markets are still central to investors. Germany is the most popular market, according to CBRE, displacing the UK, which spent the past four years as Europe’s top destination for property investment.

Turnover in the UK investment market was down 18 per cent in the second half of 2015, as Brexit fears and slowing economic growth weighted on investors’ minds.

“A notable change on 2015 is that 10 per cent of respondents think the Netherlands is the most attractive market in the EMEA region, up from 5 per cent in both 2014 and 2015,” according to CBRE.

“The increased attraction of the Netherlands has already been seen in the strong growth in investment activity in Q4 2015, and this result suggests that growth is set to continue.”

London remained the top spot for investment in the survey, but its lead over other destinations has been cut. Warsaw, Budapest, Prague and Bucharest all featured in the top 15.

Three German cities – Berlin, Munich and Hamburg – made it into this top 15 destinations with property investors.

“Notable over the last few years is the increase in the number of investors highlighting Berlin and a decrease in those picking Munich as their preferred investment destination,” according to the survey.