Real Estate Transaction Barometer 2022: European real estate transactions are becoming more complex

November 17, 2022
Transaction Barometer

How are real estate transactions in Europe developing? What are the challenges and opportunities for investors on the 2023 horizon?

One thing is clear: the appetite for cross border investment remains big. This is what recent research of the European transaction market by Drooms reveals. To prepare the Real Estate Transaction Barometer 2022, Drooms, the leading provider of digital platforms for real estate assets in Europe, evaluated more than 4000 transactions between the years 2019 and 2022, as well as surveying 172 real estate professionals in several large European markets.

But what Drooms research also reveals is that European real estate transactions are becoming increasingly complex. This article looks at the challenges for the commercial real estate sector posed by the increasing complexity of deals, as well as other emerging trends.

Real estate transactions are taking longer to close

For commercial property owners, patience is the new gold. The trend shows that cross key European markets, real estate transactions are taking longer than ever before. Overall, the duration of a real estate deal from the bidding process to the closing has drastically lengthened over the last 3 years.

While in 2019, the number of days between the start and close of transaction was just 165, in the first half of 2022, this figure had shot up to 258, a 55% increase in the average duration.

real estate transactions
Upward Trend: Real estate transaction in Europe is taking longer

Duration of UK real estate transactions shows sharp rise

The upward trend is consistent across the European markets surveyed by Drooms. However, a country comparison shows some disparity in how steep the curve is. In Germany, Austria and Switzerland, the time spent on a real estate transaction increased from an average of 167 days between opening a transaction data room until closure (2019) to 273 days (H1 2022). The United Kingdom saw a similar sharp increase from 160 days (2019) to 256 days (H1 2022).

In France, southern Europe (Spain, Italy, Portugal) and the Benelux countries (Belgium, the Netherlands, Luxembourg), the same trend can be observed, although the average duration of a real estate transaction is significantly shorter. While the length of French transactions increased from 181 days (2019) to 198 days (H1 2022), the duration of a transaction in the southern European countries went up from an average of 121 to 192 days within the same time frame. Although transaction time in the Benelux countries did also increase, at 179 days in the first half of 2022 (2019: 130 days), it was nevertheless the lowest.

Economic situation causing deal uncertainty

Delays caused by the coronavirus pandemic has played a significant role in this development, as many deals were put on hold during this period. Today, the unstable economic environment is making buyers a lot more hesitant with their investment decisions. Harder negotiations can make the dealmaking process  much  more difficult to complete. The result is felt across the industry: Real estate transactions are taking a lot more time to complete and some even fail to go over the line.  On top of the present economic situation, increasing market regulations are also presenting investment players with new challenges.

Fragmented market regulations add to the complexity

When it comes to international investments, country-specific regulations are a cause of frustration for commercial real estate experts, with around 47% of respondents in total seeing this as the main obstacle. Growing ESG obligations and the heterogenous transposition of the EU regulation into national law are also likely to be adding to the complexity. In this area, the European Union is not as unified as it appears to be. Nearly 30% of respondents view the lack of market access and market knowledge as the biggest obstacle to European cross border transactions. Consequently, potential buyers must look to the expertise of legal and tax specialists, law firms, and advisors in the investment destination country – that too contributes to a growing complexity of the transaction ecosystem.

real estate transcations
Main obstacles to cross-border transactions

International real estate investment on a high

Despite the rising complexity and fragmented regulations, international real estate investments remain high on the agenda for 2023. Approximately  one third of the real estate professionals surveyed by Drooms plan to expand their investments into foreign commercial properties, with only approximately 17% wanting to cut back their international investments next year. In addition to the diversification opportunities that come with international transactions, the opportunities to increase return on investment are likely to be the most important factors contributing to this.

Cross border investment
International investments are high on the agenda for 2023

German investors are viewed as key drivers on the European real estate market, with around 51% of respondents holding this opinion. Investors from the US and the UK follow shortly behind at 26% and 23%.

In a comparison between countries, the Spanish market is heavily dominated by international investments. 73% of Spanish businesses view foreign investors as the main drivers. However, foreign capital also plays an important role in France (46%), Germany (31%), and the United Kingdom (27%).

International real estate assets are attractive

The large number of companies who want to maintain or even expand their international activities in 2023, shows that despite the growing complexity, cross border investing continues to be attractive. Tapping into new real estate markets is important for diversifying the portfolio and opening up new return on investment opportunities, especially in the midst of a deteriorating economic situation.  Nevertheless, our study also reveals that acting at international level requires thorough risk assessment – even within the EU.

Know the risks, control the deal

When the average duration time of a transaction is on the rise, investors should keep transaction costs on the radar. This is where a Drooms data room comes in. By structuring all the deal documents on a secured platform and making the relevant documents available to the different deal parties at the right time, the Drooms software simplifies the transaction processes across the whole deal life cycle. In the context of international transactions, the integrated real-time document translation in five languages is particularly interesting, supporting the due diligence process across borders and contributing to keeping transaction costs under control.

For a closer look at the scope and obstacles relating to cross border real estate transactions including country comparison and the potential offered by different markets and asset classes, look out for the next upcoming blog in our series Real Estate Transaction Barometer 2022.

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