London, Paris and Germany – primarily Berlin, Dusseldorf, Frankfurt, Hamburg and Munich – have been real estate investment hot spots since the evolution of the financial crisis because they offer stability. However, while they are still preferred locations to flow capital, other areas of Europe are starting to catch the eye of real estate investors.

In the first half of 2013, the U.K. ($20.2 billion euros) and Germany ($17.4 billion euros) accounted for more than 50 per cent of the total real estate transaction volume in Europe, according to Real Capital Analytics. France lost 16 per cent on the total European investment share and saw a transaction volume of $7.7 billion euros.

The winners in terms of an increase in transaction volume were Russia (66 per cent year-over-year change), Italy (114 per cent year-over-year change) and Spain (106 per cent year-over-year change). The latter two experienced a rebound in transaction activity that was not expected. As well, the significant increases experienced in these two countries were based on low levels in the comparison period – the Italian and Spanish markets had a share of slightly more than five per cent of total transaction volume on the continent in the first half of 2013. That being said, these numbers may be an indication of revitalizing markets.

Investors are shifting up the risk curve again. In Russia, for instance, pre-leases only accounted for a small percentage of total take-up in the first half of 2013, which is reflected in comparably high vacancy rates – 13 per cent for office space, which can increase to 80 per cent of new space coming on the market. The increased interest in transactions in countries like Spain and Italy, on the other hand, can be explained not only by the improving economic outlook but also by the relative gap in real estate investment yields between northern and southern Europe.

In the second quarter of 2013, investment in office buildings in peripheral countries showed yields that were approximately 2.5 per cent higher than in Scandinavian countries. In the saturated markets, investors have increasingly rediscovered the secondary locations in order to satisfy their appetite for returns.

However, while prime locations have become too expensive for many real estate investors, focus still lies on these areas and the quality buildings that are backed with strong covenants on long-term leases.

Beat Seger is a partner in the real estate advisory division at KPMG. With 30 years experience in real estate business, his focus is on real estate related transactions, strategic and organizational consulting, process management and project marketing. Beat can be reached at bseger@kpmg.com.