Risk appetite continues to rise in Europe - Union Investment

Despite the ever-growing number of unknowns in the real estate market, investors' risk appetite continues to grow, driven by an ongoing search for returns, Union Investment's latest property investment climate study shows.

According to the report, which draws on a representative survey of 171 professional property investors in Germany, France and the UK, 86% of professional investors believe that the overall willingness to invest in commercial real estate markets in their respective countries will continue to rise or at least not decrease over the next 12 months.

'Europe is doing well. The overall macro-economic picture remains positive. The high level of investment interest in Europe, including from overseas investors, is one of the reasons why the property investment climate in the main European markets is comparatively stable, despite toughening conditions,' said Olaf Janßen, head of real estate research at Union Investment Real Estate. 'At the same time, the decreasing availability of prime assets combined with current prices is forcing investors to contemplate higher levels of risk.'

Around 51% of survey participants believe they will miss their yield targets in the next three years, as they face continuing high prices and correspondingly low returns. And even taking a five-year view, one in two of those polled see themselves failing to achieve the expected return on investment.

Accordingly, many real estate investors are accepting the need for more risk to mitigate the danger of a further decline in yields. Some 81% of UK investors stated in the survey that they mainly or only take property investment decisions based on returns.

That represents an increase from 76% in May 2015. Correspondingly, the percentage of investors focused on security in the UK declined by a further five percentage points to 13%. In Germany and France, returns and security are currently level pegging, but here too there is a clear trend towards returns. By contrast, liquidity considerations played only a minor role in investment decisions across all the groups surveyed.

Portfolio deals with greater risk
The Union Investment survey reveals that the search for higher returns is boosting interest in portfolio deals, particularly among real estate investors in France and the UK. Half of all investors surveyed stated that they were actively considering purchasing property portfolios.

In France, investors were strongly interested, at 74%, followed by UK professionals, at 67%. This is in contrast with Germany where only 24% of property investors surveyed in Germany are interested in potential portfolio purchases. The overwhelming majority (57%) of German respondents stated that they were not engaged in any way in acquiring or selling portfolios.