European non-prime property begins to outperform prime: JPMAM

The European property sector has entered a new phase of the real estate cycle, in which non-prime property has finally begun to outperform prime, according to JP Morgan Asset Management’s head of strategy for real estate Joe Valente.

'Capital values are expected to rise by 10% in the non-prime sector in 2014 and 7-10% in 2015. This compares with around 5% per annum at the prime end of the market,' commented Valente.

He added: 'Market conditions today are beginning to look remarkably like those of the early 2000s when non-prime yields started from a relatively high level, at a time when GDP growth was gathering pace from a low base, investment demand began to increase rapidly due to domestic institutional demand as well as the availability of debt which eased considerably in a very short period.'

As evidence of this, Valente pointed to the 20% growth in transaction activity in Europe in the last 12 months as well as to domestic institutions' appetite for real estate which is expected to have a profound effect in terms of stabilising real estate values in secondary/regional markets.

While prime property has been mainly purchased by cash-rich sovereign wealth funds, traditional real estate investors have been waiting for more attractively priced opportunistic investments. 'The growing number of investors looking to invest in Europe opportunistically is gathering pace, particularly as non-prime is much more attractively priced than prime,' added Valente. 'If capital values continue to rise, we expect 2014 and 2015 to be key investment periods for non-prime European real estate.'