European commercial real estate markets are being shaped by continuing high demand, as well as the impact of online retailing on various sub-sectors and the diminishing cyclical nature of office markets, according to a report published by pan-European investor Patrizia Immobilien.
The 2016 edition of Patrizia Insight shows that demand is set to outstrip supply, with a strong appetite for both core and value-add investment opportunities in property markets across Europe, as low a low interest rate environment continues to attract institutional investment to the sector.
Examining key drivers of this demand across the different sectors, the report notes that European office markets are no longer following the cyclical trend prevalent in recent years due to the continuing stabilisation of rents and vacancy rates. 'Investors who have always geared their investment strategies to these cycles now need to re-think,' said Marcus Cieleback, author of the study and patrizia's head of research.
The report also highlights that the popularity of online retailing is continuing to have a noticeable impact and both the retail and logistics sectors are undergoing profound structural changes as a result. The changes in consumer spending on online shopping has prompted a significant rise in demand for logistics space. 'This is opening up a whole number of new investment opportunities for institutional investors,' Cieleback said. 'We can see how individual segments within the logistics market are becoming derivatives of the retail market because they are experiencing the same structural changes.'
This change in consumer spending habits and the growth of online shopping has also changed the way retailers regard their formats and locations. This means that there is a renewed focus on high-quality shops in prime locations for retail property, with retail space in more secondary and tertiary locations set to decrease as retailers close more stores in such locations. 'Overall, the number of retail outlets is expected to decline over the coming years,' Cieleback explained. However, within this there are still opportunities for investment within different segments of the retail sector such as clothing, DIY and groceries, as they all respond to the growth in online spending differently.
Patrizia is a real estate investment manager active in 15 European countries. The company manages real estate assets worth around €17 bn, primarily as a co-investor and portfolio manager for insurance companies, pension fund institutions, sovereign funds, savings and cooperative banks.
