Global investors are expected to continue targeting Europe in the coming 12 months, but it remains a challenge to find sufficiently large and liquid markets to spend their money.

Global investors are expected to continue targeting Europe in the coming 12 months, but it remains a challenge to find sufficiently large and liquid markets to spend their money.

That was one of the key conclusions of a recent Outlook Briefing held by PropertyEU at the Paris office of law firm Taylor Wessing. ‘At city level, there are only a couple [of markets] really that have the liquidity for deals in the large ticket bracket and where transactions are happening,’ noted Marcus Cieleback, head of research at German listed investment company Patrizia Immobilien. ‘If you want to invest more than €75 mln in a single deal, it is London and Paris that dominate the European scene because they are the markets where you have large asset deals. Frankfurt also has some large tickets, but it has a lower growth story in terms of GDP and workforce size.’

There are other cities with similar workforce growth like Warsaw and Munich, but they don’t offer so many opportunities in terms of large deal sizes, Cieleback said. ‘That’s why competition in London and Paris is heating up. There are only a few opportunities outside these four or five cities. Investors always have to think about their exit strategy and whether the market has sufficient liquidity. It’s only in the global cities that they can trade and actively manage a portfolio.’

He pointed out that most countries in Europe face an ageing population and declining workforce with the old age dependency ratio above 40% in almost all European countries. ‘A notable exception is Luxembourg due to its role as a financial centre and its attractiveness to specialist professionals.’
Urbanisation is also a key factor in the equation with most investors in Europe looking at cities and currency regions rather than individual countries, Cieleback said.

PERIPHERAL MARKETS BECOME MORE LIQUID
Liquidity is a key consideration for SEB Investment, the company’s head of investment Nils Hübener told the Outlook Briefing. ‘We will be net vendors for the next few years, and we have a major interest in understanding how liquidity will evolve in the markets that have not been liquid in recent years. We see a lot of interest, also from newcomers, in core markets, like France, and from the point of view of a vendor there’s a huge range of buyers with an interest in real estate. But we also see more interest in more peripheral markets, in Central Europe for instance. We’re certainly seeing more liquidity evolve, also in leasing, in markets there. We see a pickup in some markets that had been lagging, and that improvement is the basis for successful opportunistic re-entry into those markets at the moment. In terms of new investment, we are also led by a pickup in some of the core plus markets and opportunities to buy which may be supported by a stronger occupational market.’

While some investors have become wary of France due to the introduction of corporate and personal taxes by the Labour government led by Francois Hollande, Hübener still sees a sufficiently liquid market. ‘There are investors with a short-term view on France, but so many others have a completely different outlook. Risk is always a relative perspective. I think that investors who are looking to invest in Europe and France are not going to be led by who the president is of the French République, but rather by the question of whether they want to be in Europe and in a very core and liquid market. There are so many different investment rationales out there.´

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