OUTLOOK BRIEFING: Lack of product will brake resi investment

Lack of institutional-grade product may act as a brake on the further development of the pan-European residential investment market, Marcus Cieleback, head of research at German listed investment company Patrizia Immobilien, has warned.

‘In the last few years, we’ve seen quite a few deals happening. Bigger deals are going on, and not just in Germany; things are also changing in the Dutch market. The question is whether this is something for the long run, not only in the Dutch market, but also in the Nordics, Ireland and Spain,' Cieleback said.

"Will investors use this momentum to create product for the market? House prices are turning, but how fast can developers create new product? If investors simply don’t find the product, we won’t see the market developing. Lack of product will hold investors back.’

Cieleback made the comments at the PropertyEU Investment Briefing on the outlook for H2 2014 held on Tuesday at the Paris office of law firm Taylor Wessing. He pointed out that only a handful of companies with a pan-European strategy exist. ‘I think more will emerge in the next few years, unless the market turns and doesn’t develop.’

GLOBAL CAPITAL
Turning to global capital flows, Cieleback said a huge amount of equity was targeting Europe from Asia and the US. ‘The challenge facing investors is where can the capital be invested. If investors are looking for large deals, then there are really only a few cities in Europe that provide that type of liquidity. For deals of more than €75 mln, London and Paris dominate.’

Cieleback said that the ongoing compression of prime property yields in Europe is being driven by the simple fact that alternatives on the capital markets like bonds and equities are generating such low returns at present. In other words, the weight of capital continues to push property yields lower, he argued. ‘But what happens if central bank rates and bond yields go up? And when will we see the turning point? Or, are there bigger challenges in Europe that will keep interest rates low? The Fed (US Treasury ed.) may start to lower interest rates in 2015, but when will the ECB follow?’

CLICK HERE to watch Marcus Cieleback's full presentation.