Investors in European real estate are employing a wider range of strategies in response to near-record low yields for core assets.

Investors in European real estate are employing a wider range of strategies in response to near-record low yields for core assets.

A report by Invesco Real Estate (IRE) finds that returns for core investors are expected to be moderate as interest rates stay low. Shopping centres and logistics likely to outperform other sectors over the next five years because they offer higher income returns.

Kim Politzer, Invesco’s European research director, said: ‘With interest rates looking like they are going to be low for longer, real estate provides some great opportunities for investors to generate yield, if you know where to look.

‘We are seeing some interesting options for manage-to-core and development strategies, though the opportunity is often highly localised, you can’t just buy the market.’

The report says Central London office markets are likely to offer the strongest rental growth for core investors, despite low initial yields.

More adventurous investors might consider smaller deals in the value-add space, as this is a niche that has been largely overlooked by the recent influx of major North American players looking to deploy large amounts of capital for European “distress” strategies.

Recovering Southern European markets are forecast by IRE to produce some of the strongest returns over the next five years. The report highlights in particular manage-to-core opportunities in Milan and Madrid, where growth is expected to outstrip national levels and lack of development is beginning to create localised shortages of grade-A space.