Global property investment fund managers view Europe as their main target in the next 12 months, according to adviser Catella which is tracking €515 bn of global capital seeking to get into the market.
Global property investment fund managers view Europe as their main target in the next 12 months, according to adviser Catella which is tracking €515 bn of global capital seeking to get into the market.
However, only about half of this capital is expected to be deployed due to lack of suitable product, price mismatching and regulatory issues, Catella said.
The volume of global real estate capital targeting Europe has in fact doubled this year from €250 bn in 2013, according to the firm's latest research.
'We see this large volume of capital changing the investment markets in Europe in the medium term,' said Thomas Beyerle, group head of research at Catella. 'As capital spills over from traditional Europe investment centres London and Paris in the next 12 months, we expect to see increasing investment activity in Germany, the Nordics and Spain.'
Catella’s research indicates that cross-border activity between these markets will gain momentum and that investment markets will become more increasingly international. Domestic investors will be challenged by the new investors attempting to enter these markets.
WHY THE INCREASE?
The reasons why this large investment volume is targeted at the European market now are complex, Catella said. A key factor is the high liquidity provided by the US Federal Reserve (Fed) and the European Central Bank.
Other factors include the poor performance of the bond and fixed income markets and the need for stabilised, long-term investments, Catella said.
In addition, the research highlights an 'over-allocation' from Asian fund managers into Europe’s economies, in particular a strong increase of Chinese investment capital into European and US real estate.
The European real estate community has also increased its targeting of Middle Eastern capital, especially sovereign wealth funds out of London and Paris. At the same time there is 'slightly increased interest' from US investors and private equity funds as well as Canadian pension funds, Catella said.
SUPPLY-DEMAND MISMATCH
Although demand for European real estate is growing, the supply of the right type of assets remains
restricted. 'While the figures seem dramatic and impressive, we expect about half of the capital to actually find its way into the markets in the end. The reasons are shortage of core segment properties, mismatched price expectations and complex regulations that hamper new funds’ investment ability.
'Therefore, our forecast for 2014 is positive but cautious, predicting a European transaction volume of around €215 bn, which is slightly lower compared to 2007, but an increase of 53% compared to 2013,' Beyerle said.