Overpricing key threat to European investment market

The availability of stock and overpricing are the biggest challenges facing the European real estate industry in 2014, according to Mike Sales, managing director and CIO global property at TIAA Henderson.

‘Europe was distressed three years ago, but core markets have repriced since then,’ he pointed out in an interview with PropertyEU. ‘There’s no mismatch there.’ One notable exception, he added, is Spain. ‘Core capital is lined up in Spain and I think we’ll see more of that in the next 6 to 12 months.’

The weight of capital targeting Spain, which includes financial players and hedge funds like Pimco, is driving yields down very rapidly in the country’s key cities and markets. At the same time, bond yields in Spain are still very high which suggests that some investors are attracted to the bond-like qualities of property or are counting on further capital and rental growth. But investors should not ignore the real estate fundamentals, Sales warned. ‘You have to be careful and look at other asset classes as well.´

Overpricing and lack of stock are also viewed as the key threats to European real estate investment by investors polled in CBRE’s latest Investor Intentions survey. A major contributor is that Europe is set to become the key target for global real estate investors this year. Overall, global investment is set to rise 13% this year to $1.33 tln (€968 bn), with Western Europe and the US expected to drive the uplift in activity, according to Cushman & Wakefield.

Recovery was also clearly visible last year, the adviser said, pointing to a 23% rise in global property investment to $1.18 tln (€859 bn), the highest total since 2007.