Investors look for alternative sources of returns

Asset management is forecast to play a key role in driving investment returns in the current low growth environment.

The repositioning of existing assets will be a crucial component of investors’ European real estate strategies in the coming year, market experts said at a PropertyEU European Investment Briefing on the outlook for 2014.

In a low-growth and low-interest rate environment, investors will look at alternative ways to generate returns from their investments, said Marcus Cieleback, head of research at German property group Patrizia Immobilien.

'Asset management is the story for the coming years,’ Cieleback told delegates of PropertyEU’s event held in London. ‘Investors are asking themselves: what are we buying, how can we work on the property, how will this asset be placed in a higher interest rate environment, four or five years from now? Opportunities in the years ahead will be not so much in prime but in secondary real estate, and by secondary I mean not in terms of location but in terms of quality/tenancy and value-creating potential.’

Against a background of continuing uncertainty, institutions have been focusing on trophy assets in gateway cities and the return premium for taking on risk has grown increasingly wider. Today, investors with a higher risk-profile are getting rewarded handsomely, according to Simon Martin, partner and head of Research and Strategy at the UK-based private equity investment management firm Tristan Capital Partners.

'There is a huge demand for core and a lack of capital for assets that require capital expenditures,’ Martin said, adding that he sees ‘plenty of opportunities in the creation of core’ in the next years. ‘We are focusing on creating product that once completed will sell well in the international community,’ he noted. Currently, Tristan manages around €4 bn of assets for its clients and is in the final throes of a capital raising for its EPISO 3 opportunity fund. In total, the firm has roughly €1 bn of equity to put to work, Martin added.

Commenting on clients’ risk appetite, Martin said investors seem to be relaxing their fiercely defensive stance. ‘Three years ago clients were focused on safeguarding their equity positions. This attitude is gone. We are on track for a new investment cycle where the main question is: do I risk missing opportunities if I don’t do this?'