Global investors are increasing their allocations to European real estate, with growing interest in some of the markets most affected by the financial crisis, according to LaSalle Investment Management’s Mid-Year 2014 Investment Strategy Annual (ISA).
Global investors are increasing their allocations to European real estate, with growing interest in some of the markets most affected by the financial crisis, according to LaSalle Investment Management’s Mid-Year 2014 Investment Strategy Annual (ISA).
LaSalle’s twice-yearly ISA looks at investment trends around the world and highlights the best investment opportunities.
The global report reveals that the starkest upside surprises are found within Europe — the fastest growing G-7 countries in 2014 (UK and Germany), the biggest drops in sovereign rates (Ireland, Italy and Spain), and the most creative Central Banks (the ECB’s negative interest rates and the Bank of England conditioning the market to expect rising interest rates).
POSITIVE MOMENTUM
Mahdi Mokrane, head of European research at LaSalle, said: ´The positive momentum in Europe is probably well grounded and it is no surprise that global investors are up-weighting to European real estate. Capital flows into the region continue to progress and there is now increased appetite for risk in core markets and more interest in markets that were previously not on international investors’ radar screens such as Spain, Italy and Central Europe.
´However these broad trends can’t hide the fact that Europe’s real estate markets continue to run at different speeds. At the forefront is London and the wider South East UK, which boast both appealing real rental growth prospects in central locations, along with more attractively-priced income in London’s transit-linked submarkets such as Hammersmith, King’s Cross or Farringdon.
´We believe long-leased (inflation) index-linked assets in alternative sectors such as student housing, hotels, and healthcare, are attractive for defensive core strategies. Whilst there are mounting risks of an overheating housing market in parts of London, the supporting values in this undersupplied sector bode well for many residential or lodging-based investment strategies. This extends to the private rented residential sector and hotels.'
STRATEGIES
LaSalle continues to believe in the benefits of near-Central Business District office strategies linked to demographics, technology and urbanisation (DTU) trends in Gateway cities such as London, Paris, Berlin and Munich. Alongside the UK, the other attractive higher-growth markets in Europe are Sweden and Poland
Value added strategies in the UK include undertaking refurbishments, securing tenants for larger schemes prior to construction, or forward-funding existing projects. The best prospects are for those locations that are aligned with once-in-a-generation infrastructure projects such as London’s Crossrail scheme.
Mokrane added: 'Moving up the risk curve, we think there is a case for office development strategies in Paris whose market is less reliant on an expanding economy and Germany where we expect solid city –level growth for Tier 1 cities. Both strategies capitalise on a long-standing undersupply of modern stock in key occupier markets.'