Germany has unseated the U.K. as the most active commercial real-estate market in Europe, reflecting greater caution toward Britain after it voted to leave the European Union. Britain had held the top spot for the previous decade. Nearly EUR59 billion ($63.5 billion) of commercial property was traded in Germany last year, compared to around EUR57 billion in the U.K., according to data-tracker Real Capital Analytics. The Brexit vote in June caused a level of caginess among investors who were already wary of high U.K. prices after a multiyear property boom. U.K. deal volume fell 43% in 2016 compared to the year earlier, Real Capital data show. Transaction volumes were also down in Germany and across Europe overall, albeit less than the U.K. In Germany, the biggest economy in the region, deal volume was down 19% last year compared to 2015, Real Capital said. European volumes were down 21% on average. Investors and analysts have cited a lack of property for sale, rather than shrinking demand, for the broad fall in deal volumes. In the years following the 2008 financial crisis, investors turned to real estate in a hunt for yield amid ultralow interest rates. The primary targets were properties in the biggest European markets--the U.K., Germany and France--and standard commercial property sectors like offices and shopping malls. But after years of strong demand and rising prices in those areas, investors have been turning elsewhere. Demand for property in smaller European property markets has swelled. Italy, Sweden, the Netherlands and Finland all had record levels of property investment in 2016. Madrid was a top-five destination among European cities for the first time since 2008, Real Capital said. Investors also have shown greater appetite for property development in Germany's biggest cities, Real Capital said. Development typically pays higher returns because risks are greater. Offices and retail property have long been the dominant real-estate sectors. But last year logistics warehouses, increasingly important as consumers move to online shopping, were the only sector where investment volume rose, Real Capital said. There were a record EUR12.7 billion of deals done last year, up from EUR12 billion in 2015. Uncertainty in Europe this year is set to persist. Elections in Germany, France and the Netherlands "may present some surprises, while the steady uptick in inflation means that central banks may start to review ultra loose monetary conditions," said Tom Leahy, senior director of EMEA analytics at Real Capital. But opportunities still exist "for those with a strong grasp of the local market dynamics," Mr. Leahy said. Write to Art Patnaude at art.patnaude@wsj.com
Commercial property transactions in Germany reached € 59bn ( $ 63bn ) last year , beating the UK , which saw € 57bn of deals , for the first time in a decade , according to data from Real Capital Analytics . Sales across European markets were down 21 % on average , with Germany 19 % lower . Demand has exceeded supply in major European cities , pushing investors towards smaller property markets ; Italy , Sweden , the Netherlands and Germany all recorded record high transaction volumes in 2016 . Industrial logistics warehouses are becoming more attractive as consumers change buying habits , while investors are also taking on more development risk in search of better facilities .