Europe is likely to experience “style-drift” in the near future, with investors moving beyond traditional real estate asset classes.
Richard Johnson, UBS global head of real estate business development, told delegates at IP Real Estate’s first event in Asia that investors in Europe’s main sectors would inevitably “drift” towards alternative sectors.
“That will be the biggest challenge,” Johnson said, speaking on an investment panel chaired by ANREV chief executive Alan Dalgleish in Singapore yesterday.
“It will be tricky not to drift. You don’t want a client that suddenly wants to invest in a redundant theme park.”
Opportunities, he said, could come out of ageing populations, with the healthcare and care home sectors potentially “institutionally acceptable real estate”.
With demand for traditional real estate assets high, supply of new properties must now be the “next phase”, Johnson said.
Fellow panellist Hamel Shah, partner at Azimuth Global Partners, said investors’ familiarity with legal systems would drive investment beyond capital cities.
Asian investors in London, he said, were surprising market observers by selling assets less than three years after purchase.
Foreign investors in the UK capital, he added, were grasping the fact the city was a trading market.
Meanwhile, BlackRock managing director Thomas Mueller said London could feel the effects of the conversion of office assets to residential.
The purchase of London assets by sovereign wealth funds had in some cases “taken assets out of the market for good”.
In a separate presentation, Mueller said, with continued yield compression in the core sector, BlackRock was looking to “manufacture” core properties.
Prime yields, he said, could compress by a further 50 basis points.
“Core is not the way forward,” Mueller added. “A value-add approach is therefore the right strategy.”
Sparinvest Property Investors partner Marko Multas said a lack of product had created the risk of being “stuck with uninvested capital”.
“More product is now slowly becoming available,” Multas said, adding that, in Finland, more opportunities were emerging in the healthcare sector.
“There are a lot of deals to be done, but investors need to be comfortable with the kind of returns,” he said.
Germany’s student housing sector, according to speaker Philipp Rohweder, vice-president at Corestate Capital, is a credible alternative, with opportunities beyond major German cities and in less obvious locations.
The event’s panel also considered geographic diversification, in addition to a move into new sectors.
Johnson said that, a decade ago, the panel was more likely to have been sitting in Europe and considering “whether to invest in Kuala Lumpur or Shanghai”.
“Europe is the ‘least ugly duckling’ and in vogue,” he said.
While Multas said there were now “pockets of growth” in Europe, the event’s keynote speaker, professor Sotiris Tsolacos of Henley Business School, said the Continent – although still “vulnerable” – now offered more fiscal discipline, with EU member states now screened for their economic health.
That, he said, should give investors more comfort than in previous years.
By the end of the first quarter, around €23bn had been invested in the UK, with Germany and France attracting €9bn and €4bn, respectively, according to La Française head of international real estate Philippe Peirs.
With a focus on the three countries, the company will not rule out a “bite-size investment in a liquid city” elsewhere, he said.
The future of Europe’s cities was analysed by TH Real Estate director Andrew Rich, who pointed out that Paris was likely to be superseded by Istanbul as a fashion capital.
His company, he said, had identified 42 global cities it considers ripe for investment following a study of “mega-trends”.
While TH Real Estate has kept the list under wraps, it sees more growth in Africa and the Asia-Pacific region.
Investors are, Rich said, looking more to cities than sectors, with a preference for urban markets with young populations and a rising middle class.