BRIEFING Capital will continue to flow into European real estate

Capital will continue to flow into European real estate despite a new-found caution and less optimism in the market, experts agreed at PropertyEU’s Global Capital Flows and Opportunities Investment Briefing, which was held in March at MIPIM in Cannes.

‘There is still such a significant amount of capital waiting to be deployed that I expect investors that have eased off to be replaced by many other investors from Asia and the US that have yet to enter the European market,’ said Rob Wilkinson, CEO of AEW Europe.

‘We do not see this continuous flow of capital as a transitory phenomenon,’ said Arthur de Haast, Head of International Capital Group at JLL. ‘We think this situation will continue for a long time, especially as low interest rates are here to stay and we have negative bond yields in many markets.’

Yields may be low in a relative sense, he added, but looking at the spread with bond yields, real estate still looks pretty attractive to an asset allocator looking for opportunities. With the equity markets experiencing great volatility and bonds at such low levels, investors have a very limited choice and this works in favour of real estate, notwithstanding the low yields.

Demographic trends and changes in the savings culture in Asia and elsewhere are also playing into real estate’s hands. The large pension funds and insurance companies are experiencing huge inflows as people are saving, often for the first time, and they have an increasing propensity to invest offshore and an ever-growing interest in real estate.

Attracting capital from outside the EU is ‘the last of our worries as there is so much capital coming from Europe that we have difficulty allocating that capital,’ said Tim Bruckner, managing director of Corpus Sireo Asset Management.

Globalisation
The globalisation trend is working in real estate’s favour, as Asian, American or even Latin American companies that have been investing in other offshore industries turn their attention to the property sector. ‘What we are seeing is just the beginning,’ said Pertti Vanhanen, global head of property at Aberdeen Asset Management. ‘We as a group have just obtained a license in China to raise money, and we expect to have a very busy year.’

Europe’s geographical position is also a positive, as investors from both East and West looking to diversify their holdings find it convenient to invest in the centre. ‘Europe sits in the middle, so it benefits from the twin capital flows from Asian institutions and US players,’ said Tom Leahy, director of market analysis, EMEA, at Real Capital Analytics. ‘In 2015 almost 50% of deals involved a foreign player, either on the sell-side or on the buy-side. Europe is becoming an increasingly global market as investors seek diversification. What we have seen so far is just the tip of the iceberg.’