Standard Life sees Europe outperforming UK market in 2015-17

Standard Life Investments expects the European market as a whole to outperform the UK market over the next three years.

It is now predicting growth of 7.3% in the UK, but 8% across the whole of Europe, matching predictions for Asia Pacific. The US is predicted to grow by 9.1%, Brazil by 6.2% and Canada by just 5%.

Speaking at a special briefing in London earlier this week, Anne Breen, Head of Real Estate Research and Strategy at Standard Life Investments, warned however that it was misleading to treat Europe as a homogenous whole. ‘We expect a very positive performance from Ireland, an increasingly positive performance from Spain, and also the Netherlands because of the high yielding opportunities there.’

Sweden, France, Belgium and Germany will, she anticipates, all outperform global markets over the next three years.

The UK attracted 15% of global capital over the last five years, Breen said. The capital attracted twice as much capital as Paris, three times as much as Shanghai and six times as much as Tokyo, but this could all be about to change.

Breen is expecting the UK commercial market to achieve a return of around 20% this year, making it the strongest year since 1993. ‘We expected this to be a strong year,’ she said. ‘What has changed in the last 12 months is that we are starting to see the re-emergence of rental growth. Tenants are making decisions, taking more space – and more expensive space in certain areas. They are a little more confident in their business and expectations which is translating through to tenant behaviour.’

She added that almost all segments in the UK are now achieving rental growth and it’s not just a London story. ‘It’s retail, industrial and a regional story too now. Real estate is an industry which typically builds too much and delivers it at the wrong time,’ she warned. ‘But if you take what is under construction in London at the moment, around 9 mln ft² (836,000 m²), along with an additional 10 mln ft² (929,000 m²), available for occupation already – though of varying quality, takeup in the last year in Central London was around 13.5 mln ft² (1.25 mln m²), so we are in a pretty good place, which is why rental growth has emerged in London.’