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 titled Emerging Trends in Real Estate Europe 2015, 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.
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Dramatic rises have been witnessed 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, with 70% of investors expecting flow of more equity and debt 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.
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By GlobalDataAs 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.
ULI Europe chief executive Lisette Van Doorn said, "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."
PwC Legal’s real estate partner Simon Hardwick, who is also one of the authors of the report, said, "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."
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.
