Alternative Real Estate Assets Go Mainstream. Italy and France See Biggest Movement in Investor Sentiment. London Remains Investors’ Preferred Destination.
The
search for yield is having a significant impact on European
commercial real estate (CRE) investment according to CBRE’s 2015
Investor Intention’s Survey. As prime yields continue to improve,
CRE investors are diversifying their investment strategies and also
moving up the risk curve.
This
diversification has led to an increased interest in ‘alternative’
real estate. Real estate debt has seen the most dramatic increase in
activity over the last two years, from under €10 billion in
2012 to €49 billion in 2014 and is set to remain the preferred
alternative choice this year. 32% of respondents stated that they
will actively be pursuing opportunities in real estate debt in 2015,
closely followed by student accommodation (27%),
leisure/entertainment and healthcare (both 17%) and retirement living
(15%).
Are
you actively pursuing investment in any of the following alternative
sectors?
Of
the traditional sectors, offices remain the most popular asset class
by some margin, accounting for nearly half of all expected investment
activity in 2015. However, there was also a noted preference this
year for industrial and logistics assets, which is well in excess of
the overall amount of investable stock, suggesting that demand is
much greater than supply for this asset class.
Unsurprisingly,
given the level of interest in real estate and the capital value
growth that has been seen in recent years, access to competitively
priced stock is the biggest problem for investors today. Nearly all
(91%) investors cited one of ‘availability of assets’, ‘asset
pricing’ or ‘competition from other investors’ as the biggest
obstacle to activity.
This
has also led to a shift in the types of assets being pursued and a
move up the risk curve. Investors’ preference for good secondary
has now overtaken prime by a small margin. However, the most
interesting change is the strong jump in the attractiveness of
value-add and opportunistic assets, 10% higher than in 2014, and now
top of investors’ wish lists.
At
a country level, the UK remains the most attractive market for real
estate investment in Europe, sel ected by 31% of all respondents, with
Germany and Spain sharing second place on 15%. Beyond these top
three results, which closely mirror investors’ preferences in 2014,
there have been some substantial shifts. The largest change this
year was the 10% of investors who sel ected France as EMEA’s most
attractive market, up from just 5% last year. Italy also saw an
increase attracting 6% of responses up from 4% in 2014. Both
countries experienced a significant jump in investment activity in
the final quarter of 2014, and in the case of Italy very nearly half
the year’s turnover was seen in the final quarter, suggesting
further investment growth in France and Italy this year.
In
EMEA, which country/region do you believe to be the most attractive
for making property investment purchases in 2015?
Respondents’
selections for city preference closely followed country level
preferences. London was the most frequently chosen option at 30%,
with Madrid second at 14%. Paris also produced a strong result with
10% of investors rating it as their preferred market and another
significant mover was Milan, which attracted 5% of preferences. The
main German cities combined were considered the most attractive
investment location by 14% of respondents. In keeping with the theme
of greater diversity of investment, cities outside the top ten
attracted a substantial share of investors’ preferences, 19% in
2015 versus just 9% in 2013.
Jonathan
Hull, Managing Director of EMEA Capital Markets at CBRE, commented:
“Investors
are constantly having to evolve their investment strategies, in their
pursuit of yield and returns, as demand for European commercial real
estate shows no sign of abating. This diversification is leading
investors into new markets and sector. However, there is still
significant demand for core locations and assets, particularly fr om
the growing influx of capital fr om outside the region.
“Interestingly,
a large proportion of respondents stated their intention to increase
their overall trading activity, across a broader spectrum of risk,
this year. This movement up the risk curve should benefit a far
wider range of markets and sectors across the region.”
Richard
Barkham, Global Chief Economist at CBRE, added:
“Despite
the fact that core real estate prices are now markedly higher across
most of Europe than a few years ago, investors are still strongly
attracted to the region. This is not surprising given the spread of
property yields over government bond rates. When compared to other
territories, Europe still appears to offer the best value.”
