Long-term trends in urbanisation and demographics will boost the alternative segments of Europe’s property market, according to new research from Savills Investment Management.
Sectors including the private rented sector (PRS), student accommodation, care homes and hospitality are all marked for growth, the report says, due to factors including long leases, indexed rental uplifts, better covenants and the potential to diversify portfolios. Prime yields are now at or below 6%, with scope for further compression as these markets develop and mature.
'Historically, the European real estate investment market has been focused around the main commercial property types of retail, office and industrial,' commented Kiran Patel, chief investment officer at Savills IM.
'However, rising competition for the best assets in these traditional markets is out-pricing some investors, who are interested in higher returns and are prepared to take more risk. These investors are looking into niche market segments, and are partnering with strong local players to benefit from higher returns,' Patel said.
The report, Changing Landscape: European Outlook, claims that alternative sectors are set to attract investors who have long-term strategies and can benefit from stable, long-term income.
Despite this growth potential, however, alternatives pose some challenges for investors, including transparency that is lower in certain segments than in the mainstream market. Investors also need to consider the level of maturity in the market, stock selection, business models/ease of entry, occupiers’ ability to service rent, covenant strength and exit strategies.
Patel: 'We have no doubt that the alternative real estate sector will further increase its share of the real estate investment universe over the coming years in Europe.'
