Institutional investors who target European real estate should pay more attention to liquidity in 2018, following a reduction in the European Central Bank’s (ECB) quantitative easing, a research by Patrizia Immobilien says.
In October last year, the ECB’s Governing Council decided that net purchases within its asset purchase programmes would be reduced from the monthly pace of €60bn to a new monthly pace of €30bn from January 2018 until the end of September 2018.
Patrizia’s Insight European Commercial Property Markets 2018 report, recommends that ”liquidity will be the indicator for institutional investors to watch most closely, as ECB tapering will crucially influence the overall liquidity situation and, ultimately, pricing.”
The real estate investment manager’s report explains that this will especially hold true outside the core segment and in niche markets that have seen strong money inflows in the past years due to investors looking for yield.
Marcus Cieleback, group head of research at Patrizia, said: “While a lot of investors rightly focus on yields and interest rates, we believe the coming quarters are more likely to be defined by market liquidity.
“This is at a time when we see more focus on income returns when interest rates continue to stay low and yield compression remains the norm. It is also against a backdrop where the global economy’s performance has improved considerably and its near-term prospects appear the best in a long time.”
Cieleback adds that the main challenge now in Europe is local access to suitable products and the experience to assess future income streams, despite the fact that investment strategies in real estate have broadened.
“Overcome these challenges and you should prosper.”