Analytics, EU – Baltic States, Investments, Real Estate
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Saturday, 20.04.2024, 00:27
European investors look for a mix of healthy occupier markets and new asset classes as the sector edges towards end of the cycle
The annual
report, published jointly by the Urban Land Institute (ULI) and PwC,
is based on the opinions of over 800 real estate professionals in Europe,
including investors, developers, lenders, and advisors.
Lisette van Doorn, CEO of ULI Europe, said: “Investors are
becoming more cautious, and investment and development preferences are more and
more driven by real estate fundamentals such as the economic growth prospects
and health of the local occupier markets. Sentiment is more negative on cities
and countries facing higher (geo) political risks, which creates uncertainty
that investors don’t like. Brexit is a clear example in this respect, where a
number of respondents feel the UK will lose some of its competitive advantage,
which impacts investment and development prospects.”
This
caution is also reflected in the expectations related to the availability of
equity and debt, with around 28% of survey respondents believing that the
amount of equity available for refinancing or new investment will increase,
compared with 50% last year. However, last year’s confidence was particularly
high, and there are few current concerns about liquidity, other than for
challenging sectors such as retail, as demonstrated by the majority (54%) who
believe the availability of equity will be about the same.
One of the
main barriers to investment continues to be the availability of suitable assets
as capital continues to flow into Europe, with strong increases expected from
Asia. This is putting pressure on the core end of the market with 70% of survey
respondents either agreeing or strongly agreeing that prime assets are
over-priced.
Interest
in alternative asset classes continues to rise in face of tough capital markets
environment
One
response to this more challenging capital markets environment is that investors
are turning to asset classes that are experiencing structural tailwinds and
which are less likely to be affected by the current cycle. But Emerging
Trends in Real Estate® Europe suggests that this is only part of the
story.
Gareth Lewis, head of real estate research at PwC UK said: “The last five or so years
has seen a remarkable shift by investors towards alternative real estate, or
‘niche’ sectors. In part this is clearly driven by where we are in the cycle
and the search for income. But it is also a response to the innovation that is
disrupting the more traditional sectors and a number of long term trends such
as demographics and urbanisation.”
Residential
stands out in this respect, with seven out of the top ten sectors preferred for
investment and development, including some form of residential, ranging from
co-living, student housing, retirement living to social housing and regular
residential housing.
Gareth
Lewis concluded: “Investors are seeking greater exposure to sectors that are
supported by strong, more predictable demographic and infrastructure drivers,
such as residential related sectors - and this requires them to focus more on
the operational management of the assets.”
In addition
to residential, logistics and niche sectors such as data centres and flexible
offices are making up the top ten. Logistics clearly continues to benefit the
growth of e-commerce. Traditional formats such as city central or suburban
offices and retail formats continue to languish at the bottom of the rankings.
Sector
prospects in 2019 – top ten
Overall ranking |
Sector |
Investment ranking |
Development ranking |
1 |
Co-living* |
1 |
1 |
2 |
Logistics facilities |
3 |
2 |
3 |
Retirement/ assisted living |
4 |
3 |
4 |
Flexible/serviced offices |
5 |
4 |
5 |
Data centres* |
2 |
5 |
6 |
Student housing |
6 |
6 |
7 |
Private rented residential |
8 |
7 |
8 |
Serviced apartments |
7 |
8 |
9 |
Housebuilding for sale |
13 |
9 |
10 |
Social housing |
10 |
10 |
*a
significantly lower number of respondents scored this sector
European
cities ranked for investment and development prospects
The annual
city rankings included in Emerging Trends in Real Estate® Europe reflect
the industry’s appetite for smaller, “late-cycle play” newcomers combined with
some of the larger, established markets, while at the same time considering
geopolitical risks. Lisbon jumped ten places to take the number one spot in a
late-cycle play, with interviewees also praising the city’s quality of life and
political leadership.
The more
established German cities still dominate the top ten with Berlin taking second
place followed by Frankfurt, Hamburg and Munich ranked five, seven and ten respectively.
However, for some, the year-on-year popularity of these cities is beginning to
take its toll with many respondents citing overpriced investments in these
locations.
The rest of
the top ten is largely made up of cities, such as Madrid, Amsterdam, Vienna and
Dublin that score positively on real estate fundamentals and rental growth
prospects, but in many cases also on quality of life, connectivity, innovation
potential and attractiveness to talent.
European cities – overall prospects
2019
Overall ranking |
City |
Investment ranking |
Development ranking |
1 |
Lisbon |
1 |
1 |
2 |
Berlin |
3 |
2 |
3 |
Dublin |
2 |
5 |
4 |
Madrid |
6 |
4 |
5 |
Frankfurt |
5 |
3 |
6 |
Amsterdam |
7 |
8 |
7 |
Hamburg |
9 |
6 |
8 |
Helsinki |
4 |
13 |
9 |
Vienna |
8 |
11 |
10 |
Munich |
14 |
7 |
Despite
investment volumes and occupier demand for offices in London holding up well,
Brexit continued to overshadow London’s short-term prospects, with 70% of
Europe’s senior professionals believing that the UK’s ability to attract
international talent will fall following the March 2019 deadline whatever the
final deal.
Sandra
Dowling’s UK real estate leader at PwC
commented: “London and the UK continues to attract more capital than any other
European city, which is at odds with the increasing volume of concern expressed
by many relating to the uncertainty around Brexit. A notable feature of the
interviews was the rather more sanguine view that some non-European long term
investors took on the impact of Brexit compared with long term European or
domestic investors.”
Social
value of real estate continues to grow in importance
The report
also examined the growing influence of social value alongside the financial
returns from investments. Nearly 60% of survey respondents believe the industry
is moving towards using a wider range of non-financial measures to assess the
value of real estate and real estate businesses. Similarly, 59% agree that
non-financial metrics are increasingly important in measuring returns.
The current
outcome of this trend is a greater focus on combining uses such as co-working
facilities, retail and last-mile logistics, with non-commercial uses and
placemaking elements, such as affordable housing, community centres, public
spaces and childcare facilities.
However, it
is expected to flow through into all aspects of investment. “Our survey shows
that the ability to balance societal and financial gains will be the next big
differentiator for industry players, with investors favouring those that can
demonstrate this through all their processes,” said van Doorn.
Emerging
Trends in Real Estate 2019 is available online at https://www.pwc.com/etre2019europe