Europe's leading agents find their feet

Europe’s leading real estate agents are finding their feet again now that major and distressed markets have caught fire.

European real estate agents are finding themselves on much firmer aground again after several years of turbulent conditions. Some are also rediscovering their voice: the number of press releases jubilantly crowing that pre-boom sentiment is returning to the market has grown in leaps and bounds in the past few months. By all accounts, deal activity is revving up in most of the major – and distressed – markets and secondary cities are also getting a piece of the action.

A clear sign that the worst may be behind us came in mid-April from Cushman & Wakefield: the London-based adviser is now predicting real estate loan sales will hit €50 bn in 2014, more than 20% higher than its initial forecast at the beginning of the year. The upward revision follows deals worth almost €30 bn in the first quarter, virtually equal to 2013’s total. Since the beginning of the year, the market has seen some ‘frenetic’ and large-scale deal making, according to Federico Montero, partner in the debt advisory unit: 'The European real estate loan sale market could reach its peak in 2014 as activity soared in the first few months of this year. We won’t see a quarter like this for quite some time.’

Agnostic investors spur growth of market
Bank disintermediation is also gathering pace, spurred by a new phenomenon in the European real estate sector: investors are becoming more agnostic in terms of how to invest in property. Commenting on the trend, Philip Cropper, managing director of CBRE Capital Advisors, said investors are increasingly looking beyond direct investment. ‘They are looking at the four quadrants of real estate, private and public equity, and public and private debt. Investors need to look at all sectors at the four-quadrant grouping and see where returns will be delivered.’

In anticipation of the change in investment behaviour and the further globalization of the business, CBRE has rebranded its real estate finance unit as CBRE Capital Advisors and now offers its specialisms in debt and structured finance, capital advisory and loans servicing under one banner across the world. In the coming year, Cropper expects to see a continuation of the market recovery that set in during 2013 and more demand for real estate on the back of a growing appetite for real assets. He believes real estate will remain an attractive proposition relative to other asset classses such as debt, equities, bonds and gilts given that interest rates are expected to remain relatively low in the coming years. 'We will continue to see large amounts of capital flows heading for real estate on a global basis.'

A sizeable and growing portion of those global capital flows are heading for European markets in 2014, according to Jan Willem Bastijn, head of EMEA capital markets, Cushman & Wakefield. As a result, the huge weight of money will likely drive more than a 13% increase on last year's volume of about €178 bn, Bastijn said. The 2013 figure was already up 23% on the previous year, and according to C&W's latest International Investment Atlas, there is a lot more to come. 'Growth of 13% is a pretty staggering number, but I think it could be even higher given the liquidity available,' Bastijn said. ‘Iif you look at Europe you can see the markets have caught fire again. The investment climate has really changed in the last four to five months.'

Eyes of the world are on Europe
The money is coming into Europe from all sources around the globe, he added: Asia-Pacific, the Middle East, North America, South America and even South Africa. 'The liquidity of the European markets is back at a level not seen for many, many years.’ One proviso for growth is that sufficient real estate comes available to meet the rising investor demand. 'Some will become available, but maybe not as much as we would like in the markets going forward as the eyes of the world are on Europe in 2014.'
Commenting on the current investment climate for European property, Bastijn said the ‘world has completely changed’ in the last few months with a new acceptance of risk increasing at a rapid speed. A sign of the changed sentiment is the return of multi-billion euro blind pool investment vehicles, he noted. ‘There’s so much money out there and it’s not even fuelled by massive debt. In fact, the amount of equity is overtaking the levels (at the peak of the market ed.) in 2007. There’s an enormous amount of money on the horizon. We’ve never seen this before or the speed of the acceptance of more risk. That is a unique aspect about the timing of this cycle.’

Europe is well-placed to channel the wave of capital coming out of the US, Asia and the Middle East, added Carlo Barel di Sant’Albano, CEO EMEA at C&W. ‘Europe was beaten up so badly after the crisis but now we’re seeing a wave of capital come into Europe and that’s a good story for us. The US market has already moved ahead and US pension are now looking to increase their allocations to Europe.’ If US pension funds increase their allocations to Europe by 5%, that would generate an extra €150 bn of capital, Sant’Albano pointed out. ‘In 2007, capital flows were inter-regional. Now they’re global. Investors are now looking at any options and are more global in their approach. They are driven by return and opportunity rather than a country focus. Capital will find its goal, unhindered by any borders.’

Favourable exit environment
The increased liquidity in the market is creating a favourable exit environment, Bastijn noted. He added that yields are tightening further as retrading of assets occurs at a faster rate. ‘More exit opportunities makes investment less risky.’ On the other hand, there are challenges, he added, pointing to the limited amount of stock and the absence of rental growth. ‘The (office ed.) yield compression we’re seeing is not supported by the occupational market. There are some exceptions, like Berlin, but on the whole I don’t really see much growth in the occupier market.’

Commenting on trends in the coming years, Sant’Albano said he expected liquidity will continue to grow and that Europe will remain centre stage for another five years. Sant’Albano also expects to see greater competitiveness between European countries in response to changes in occupational behaviour. London, for example, has succeeded in attracting high-tech companies as traditional sectors like banking and finance continue to lose ground. Last year, the biggest leasing deal in London involved ecommerce giant Amazon, he pointed out. ‘That’s unique.’ In many ways, Europeans are more open-minded than the Americans, he added. ‘Some parts of Europe are more open to evaluating ways of doing things than others, but on the whole Europe is ahead of the curve. The current economic challenges facing Europe is forcing countries to change their thinking and to focus on becoming more competitive and unified.’