The 'unprecedented' availability of financing at attractive rates is keeping prices and levels of activity high in the European property market, and the situation will only change when and if interest rates go up, according to experts at the PropertyEU European Outlook Investment Briefing in London.
'Financial markets have come very strongly at an unprecedented pricing, with 0% swap rates in euro and 1% in sterling,' Alexander Fischbaum, managing director of AF Advisory, told the special briefing held at the London offices of Colliers International on Tuesday. 'The ability to finance assets at such spectacular terms, especially in Germany and the Netherlands, means that you can buy them at a high price, and this is what is driving the market. As long as there is no major change in interest rate policy, prices are likely to stay where they are.'
Doing a little homework will pay rich rewards, he said: 'If you find the right lender you will be able to get financing for almost anything. Every bank or alternative lender has a sweet spot. If you do some research, find the sweet spot and present your case well, you will get favourable terms.'
The only real risk is a sudden shift in the interest rate environment: 'I see that as a much bigger threat than Brexit,’ said Fischbaum. ‘Mario Draghi, governor of the European Central Bank, is the man with huge power over your investments.'
The question is 'what tempo and what horizon' there will be for future rate rises, said Philip La Pierre, head of investment management Europe, Union Investment Real Estate: 'If the increases will be slow and gradual then there will be time to plan and the impact will be muted.'
While the good times of cheap money last, the outlook is positive for different sectors, although some risks may lurk in alternative sectors like student housing and healthcare, which have been swamped by interest from 'investors who do not really understand the asset class, so I fear a correction may come and surprise them,' La Pierre said.
The panellists had different opinions: 'The industrial sector has held up well in the first half of this year,' said Simon Mallinson, executive managing director, EMEA & APAC of Real Capital Analytics. 'Foreign investors are interested, focusing mainly on the main capital cities.'
Retail is a fast-moving sector, 'undergoing more change than any other, and it is polarised,' said Richard Divall, head of cross-border Capital Markets, EMEA, Colliers International. 'Out of town shopping centres are successful in Germany, for example, but I also believe that super-prime central luxury retail will always do well, as in Asia alone there is enough money to keep shopping for a long time.'
In the last few years there has been no overdevelopment of offices, which has been positive for stability of income but also means that no new product is coming to the market, making development a necessity, said La Pierre. 'Offices are a risky asset class, but if you look at where pipelines are low, like Germany, and invest in the right places you will do well. Development with this cost of capital makes sense. Personally, I would go into office development in Madrid, provided Spain manages to have a government.'
_________________________________________
Outlook Europe H2 briefing programme
_________________________________________
The London event - which attracted over 100 real estate professionals - was the first of three morning events in PropertyEU's annual Outlook Europe H2 investment briefing programme.
Outlook Europe H2: Germany & European Markets in Hamburg
The discussion on potential threats and opportunities for the real estate market takes on a more Continental European flavour for the next event, which is hosted by Union Investment Real Estate in Hamburg on 22 June, a day before the British public head to the polls for the Brexit referendum.
Investment specialists including the speakers from Union Investment, Catella, DREF, Corestate and AF Advisory will look at the implications of a majority for 'stay' or 'leave' in the referendum, and consider whether European real estate markets will experience an investment bounce in the aftermath of the vote. The panel will also examine other key investment trends, both in Germany and continental Europe. What are the strategies best suited for investors at this point in the cycle? Which sectors are likely to outperform?
European Real Estate Opportunities - Investment Outlook 2016 in New York
Six days after the referendum, PropertyEU's second European Real Estate Opportunities seminar for North American investors in New York will serve as a early briefing on the impact of the 'Brexit' result, as well as insights and local intelligence on the investment outlook, macroeconomic and politic environment across Europe.
Click here for more information and to sign up to the Outlook events in Hamburg and New York
