Competition for prime assets in Europe’s major real estate markets is leading property investors to continue their move into secondary assets and recovering markets, according to Emerging Trends in Real Estate® Europe 2015, a forecast published jointly by the Urban Land Institute (ULI) and PwC. The report highlights a surge in popularity for real estate investment opportunities in a number of cities that were hit particularly hard during the last market downturn, with dramatic rises in this year’s city rankings for Madrid (up 16 positions), Athens (up 23 positions), Birmingham (up 14 positions), Amsterdam (up 17 positions) and Lisbon (up 17 positions).
The report finds that in spite of economic uncertainties in Europe, property remains fertile ground for investors. 70% of investors expect more equity and debt will flow into their markets this year in a quest for the best real estate. The biggest problem investors are anticipating is a shortage of assets, ahead of the challenges of regulation or the cost of finance. A large majority of investors (82%) believe the availability of suitable assets will have a moderate or significant impact on their business this year.
As a result, real estate investors – armed with capital from sovereign wealth funds and pension funds from Asia and North America – are moving into less competitive environments, looking at secondary cities, secondary assets and development opportunities. Berlin, for example, has replaced Munich as Europe’s top market for investment, as it is viewed as less costly than other major German cities.
“As confidence has returned to global real estate markets over recent years, there has been a progressive movement up the risk curve. Investors have found prime assets expensive and hard to source, and have in turn looked to find new opportunities in recovering secondary cities, secondary assets and development opportunities, as well as new or alternative real estate classes. The trend has been prevalent in the U.S. for a few years and was first highlighted in last year’s Emerging Trends Europe report when investors were looking at Ireland and Spain. However, this year’s report sees this sentiment gather pace with Athens, Amsterdam, Birmingham and Lisbon all being cited as potential hot spots of interest”, said Lisette Van Doorn, chief executive of the ULI Europe.
“Real estate investors will face a tricky balancing act in 2015. The market is awash with capital surging into Europe from around the world. On the face of it, this is a nice problem to have, but we expect to see prices continuing to rise due to a shortage of assets. And despite an uncertain economic climate across Europe, investors will have to look beyond the major markets to secondary cities and assets they may not have considered before. This presents both an opportunity and a challenge”, stated Simon Hardwick, real estate partner at PwC Legal and one of the authors of the report, said:
“The wave of capital rich investors entering European real estate markets is savvy and sophisticated. Their need to preserve and create new wealth will, for some, see a move away from core markets where many feel there is little value to be gained and into assets, developments and cities that give them the opportunity to achieve better returns. There is a focus on the big social and demographic trends that are shaping our world and changing the way we live. Smart investments will be the types of property that benefit from population growth, urbanisation, an ageing society and technological innovation. Nonetheless, we expect this next part of the cycle to be balanced by increasing concern about the resulting risks”, added Simon Hardwick.
An interesting consequence of the balancing act is that the appetite for residential investment is growing, stimulated by a housing shortage in London and some other markets. The interest in the private rented sector is particularly marked in the UK and Germany. Other sectors that look attractive to investors are logistics, fuelled by consumers’ increasing digital shopping habits, and healthcare.
“We noticed in Romania as well last year an increase in investor’s appetite for real-estate assets, with several large scale property transactions, both on the office segment, as well as commercial. We expect that this trend will continue into 2015, as well as a more intense construction activity, especially in more dynamic cities such as Bucharest, Timişoara and Cluj-Napoca”, stated Francesca Postolache, Assurance Partner, Real-estate services team leader, PwC Romania.