Alternative assets set to gain ground in 2014

‘Alternative’ assets, such as logistics and data storage are the ones to watch in 2014, according to Jay Olshonsky, president of NAI Global, a US-based global network of independent commercial real estate firms and a commercial real estate service provider.

In an exclusive interview with PropertyEU, Olshonsky explains why we’ll see a further uptick next year and why European real estate is getting its mojo back.

PropertyEU: Which real estate markets do you think will be most interesting to investors next year?
Olshonsky: It depends on the type of investor, really. Core institutional investors - irrespective of where they are based globally - will continue to focus on core hotspots, such as New York, Frankfurt and London. In Europe, the UK and Germany will remain the top investment markets, although we are now starting to see renewed interest in markets like Spain and Italy. Investors are coming back because the markets have dipped so far but it’s not without risk. Ultimately, most investors would still prefer to buy real estate with good returns in tried and tested markets, which are stable, than invest in markets with ‘peaks and valleys’.

PropertyEU: Which real estate asset classes do you expect investors to target going forward?
Olshonsky: Coming out of Expo Real in Munich, I learned that there seems to be a lot of interest right now in logistics and industrial properties in Germany, largely because of its location in the heart of Europe. I think investors chasing better yields will look more closely at these assets next year. Our NAI Apollo Group (our German arm) has talked to a lot of investors about this. People will always need certain services - shopping etc. - so buying into the distribution chain makes sense and will continue going forward.

Similarly, we’re seeing a lot of interest in data storage and large-scale warehouses. I know a lot of investors looking at this, with tenants such as Facebook and Google. Institutional investors, including REITS, are showing interest in such assets, both in the US and in Europe.

PropertyEU: How do you expect European real estate markets to develop next year?
Olshonsky: I do believe we’ll see an uptick in core European markets next year, partly because the US has stabilized in most of the core markets. I think US investors will also look more at Europe because there’s so much capital that needs to be invested and it has to go somewhere! Stock markets are up and investors are looking for a diversified play - but it has to be done with caution. A lot of institutional investors are still very nervous about Asia, for example, because of transparency issues.

I think we’ll see strong demand for high-quality real estate in Europe - assets in good locations, with strong tenants and leases. High street shopping will remain popular, as will core offices. There’s plenty of debt - and equity - available, especially in instances where the end-user is a global company. We’ll also see more investment into the debt space, driven by insurers and pension funds. Financing is widely available for the right opportunities but not for some of the ‘crazy’ investments we’ve seen in the past. Key European markets, such as the UK and Germany, will perform better next year than they have over the past two years. There’s a strong focus on the market and even more buyers. Demand is also stronger, which should result in an uptick in both pricing and yields. But we’re talking ‘steady’ better rather than ‘wow’ better. Over the next 12-18 months, the European real estate market is going to be about core investment, with good end users and a good local story.

PropertyEU: Do you expect investors to increase their allocation to real estate next year?
Olshonsky: Yes, because bonds and stocks are up. However, some investors are still working through problems that arose out of the financial crisis and are not investing their full allocation - yet. They’ve become more cautious since the crisis.

PropertyEU: What is the biggest challenge facing investors?
Olshonsky: The biggest challenge is that there is a lot of competition for the same product - sometimes, when a good-quality asset comes up for sale in New York, as many as 40 investors might be chasing it. The lack of supply for all the capital out there is a huge challenge.

COMPANY PROFILE: NAI Global
NAI Global is a global network of owner-operated commercial real estate brokerage firms, based in Princeton, NJ. It provides a full-range of corporate real estate services, including brokerage and leasing, property and facilities management, real estate investment and capital market services, due diligence, global supply chain consulting and related advisory services. Founded in 1978, today NAI Global member firms span the US and 54 other countries, with 400 offices and more than 5,000 local market experts on the ground, completing $55 bn (€39.8 bn) of transactions annually.