Editor’s Choice: Don’t follow the herd

The waves of global capital sloshing against Europe’s shores show no signs of abating in 2015.

On the contrary, the number of Asian investors targeting Europe is set to broaden next year, attendees at PropertyEU’s latest series of Outlook Briefings held in London, Paris, Frankfurt, Amsterdam and Madrid heard. In addition to a big push from Taiwanese, Chinese and Korean investors, the Japanese are now also poised to re-enter the market in 2015, predicted Richard Divall, head of cross-border capital markets at Colliers International.

Alfred Fink, partner and head of real estate for France at law firm Taylor Wessing sees Chinese players continuing to drive hotel deals in Paris but also high net worth individuals from Dubai, Saudi Arabia, and Azerbaijan looking to buy entirely in cash. At our Frankfurt panel, the consensus was that most of the new money flowing into Germany in 2015 will be from the US, particularly in view of the continuing appreciation of the dollar versus the euro, as well as Asia and Israel. There is pressure on the seller as well as the buyer side: Klaus Franken, CEO of Catella Property in Germany, related the incident of a German property owner who didn’t want to sell anymore after getting a ‘fantastic’ financing arrangement from the bank.

SCARCITY OF STOCK
Against that background, one of the key challenges facing international real estate investors in the year ahead in the key markets in Europe will be the scarcity of stock, according to Stephan Austrup, head of Retail for Germany at TIAA Henderson Real Estate. It already is becoming ‘a big issue’ in his home market Germany, he added. ‘It’s deliverable product and investment grade product that is really lacking and the thing which will hold the market back.’

The search for yield is pushing some investors out into non-core locations, but that is not a game core investors like Union Investment can play. ‘Europe has become a very small continent,’ moaned a visibly frustrated Philip la Pierre of Union Investment. ‘I like Oslo, but we have to hedge our costs there. Sweden is fantastic, but pricing on the rental and yield side is incredibly expensive. We look at these markets and turn over every stone, but it’s not easy.’ La Pierre’s advice: ‘Buy everything you can, because it’s not going to get cheaper in the next two to three years.’

Following the herd is a fast track to higher prices and lower cap rates, but greener pastures can still be found in some corners of Europe. Dutch residential is one of the few arenas to offer cyclical opportunities for real estate investors in the current low-growth, low-inflation environment in much of Europe, according to Marcus Cieleback, head of research for Patrizia Immobilien.

At our Paris Outlook Briefing, Raphaël Tréguier, CEO of CeGeREAL pointed out that the spread between core and non-core yields in Paris has never been higher. ‘The re-pricing has been very fast and is almost complete in the central business districts where today there are transactions at 2-3% which means only 50 basis points above interest rates. But the remaining 90% of the market has not re-priced yet and the difference between core and non-core is currently 250 bps, compared to only 100 bps in 2007.’

SECONDARY LOCATIONS IN SPAIN GAIN TRACTION
Southern Europe is also definitely back on the radar. The Italian market is throwing up some interesting opportunities, according to Jonathan Lurie, managing director of Blackstone’s Real Estate Group and Riccardo Serrini, CEO of Prelios Credit Servicing. Meanwhile in Spain, investors are beginning to broaden their horizon and a clear move towards dominant regional shopping centres in secondary cities such as Valencia and La Coruna is starting to emerge, market experts told attendees at PropertyEU's Europe & Spain Investment Briefing held last week in Madrid.

Recent deals such as Merlin’s purchase of the Marinade City centre in La Coruna and Oaktree acquiring the Gran Via de Vigo shopping park reflect this trend, according to Patricio Palomar, director of offices advisory and alternative investments for CBRE Spain. ‘For the last four months we have seen some transactions in the Valencia community, small shopping centres lower than 25,000 m2, and we have seen some transactions in the south of Spain as well that were not really appealing in the past to investors. So we have seen some transactions, not only in the prime market but also in the secondary as well,’ Palomar noted.

For a final investment pick: watch the Asians. They’re coming from all over the place and are very canny, according to Alistair Dixon, chairman of Azimuth Global Partners. In addition to mixed-used developments and outlet centres, he foresees Asian money targeting healthcare in the UK in the future. ‘There’s enormous potential there for elderly care. For hospital and acute care, there are great opportunities. The Asian investment community also really understands serviced apartments, student accommodation and data centres.’

For more investor picks, read the December-January Outlook edition of PropertyEU Magazine
HAPPY HOLIDAYS!

Judi Seebus
Editor in chief