A significant shift in the geographical composition of international capital being invested in European real estate started to emerge in the second half of 2010, according to the latest research issued by CB Richard Ellis (CBRE). Cross-regional flows of capital from outside Europe grew to account for almost half of all international investment activity in the region in 2010, well above the 33% average reported from 2009 onwards.

Cross-regional investment into Europe doubled in size from the first to the second half of last year, jumping to EUR 9 bn of activity in the second half, the highest total seen since the start of 2008. However, this capital is very narrowly focused on London and Paris, with nearly EUR 8 bn of the figure invested in these two markets alone. The last few months of 2010 and into 2011 suggest further broadening of non-European investor demand in terms of both investor type and nationality. Yet despite this growing diversity, most of this cross-regional capital targeting European property in 2011 will remain focused on London and Paris, with only a relatively small number of opportunity-driven transactions expected in other European markets.

The first signs of revival in demand from North American investors became apparent towards the year end. Canadian capital, which was largely absent from the European market in 2008 and 2009, made a come-back with EUR 1.4 bn of real estate transacted in 2010. Heavily focused on the UK market, and Central London in particular, there were 13 deals in total by Canadian investors during the year. These mainly comprised institutions and pension funds buying core assets, such as the part-purchase of Westfield shopping centre by the Canada Pension Plan Investment Board (CPPIB).

Although reduced from the EUR 25-30 bn per annum seen at the top of the market, US investments in Europe grew to EUR 5.4 bn last year, accounting for more than 40% of all cross-regional investment into Europe. In contrast to Canadian investors, US investors were mainly property funds looking either at the core end of the market (evident from the JP Morgan co-purchase of Opernturm in Frankfurt), or further up the risk spectrum in search of value-add opportunities.

Middle Eastern and Far Eastern investors accounted for 41% of total cross-regional activity into Europe during 2010.

'While the majority of this capital is institutional in nature - mainly sovereign wealth funds and pension funds - the range of active investors is now broadening to include property companies as well as private capital. This is starting to affect the type of transactions taking place,' said Jonathan Hull, head of EMEA Capital Markets, CBRE. 'The vast majority of Middle East and Far Eastern capital was invested in a small number of trophy acquisitions in London, Paris and a few German cities last year, but there were also some smaller transactions outside core Western European markets.'