GLOBAL – Convincing risk-adjusted returns are still to be found in European real estate markets which continue to generate positive growth, according to a study from Partners Group.
Renewed confidence in the markets has driven prime and core real estate pricing in Tier 1 cities globally back towards 2007 peaks, the group's latest Private Markets Navigator research report has found.
Amid the more competitive landscape, Partners suggested investors move away from simply buying value at attractive prices.
Instead, the report said investors should focus on acquiring quality assets that offer opportunities to create value-based returns through asset management initiatives, or to capitalise on compelling development premiums.
In Europe, this included regional submarkets of London; class A buildings in Tier 2 locations, or class B repositionings in Tier 1 locations in Germany; and senior loan financing to European retailers expanding into the Nordic markets.
In the US, the report saw compelling value in properties which stood to benefit from favourable demographic shifts, the rebound in US energy and growing technology centres.
And corporate expansions in Asia-Pacific were also set to create opportunities outside traditional business districts in low vacancy areas.
In private infrastructure, Partners said there were opportunities to capture excess returns through projects requiring specialist knowledge, for instance in elements of construction, while country exposure premiums compensated for additional risk.
The US offered infrastructure opportunities due to gas boom-related developments, such as gas-fired power generation, transport and liquefaction driven by continuously low gas prices and capacity constraints arising from ongoing coal plant retirements.
The report said that the case for social infrastructure was also compelling around the world, with a strong focus on Australia, which remained one of the most buoyant social and Public Private Partnership (PPP) markets.
Market developments in the US were also found to be increasing the attractiveness of the renewables sector.
And while emerging markets also offer “convincing potential” in terms of renewables, the report said that opportunities in Europe come with several challenges.
The rationale behind a value creation strategy, according to Partners, was that public and private indebtedness had increased rather than declined over the past five years. Meanwhile, structural weaknesses in most regions had been "insignificantly" addressed.
The group therefore continued to believe in a low-growth environment combined with a continuation of "assetflation" on financial markets and a high probability of renewed flare-ups of market anxiety.
Christoph Rubeli, partner and co-chief executive officer, Partners Group, said: "While the great new value divide still prevails, and prices across the spectrum have continued to increase, the emphasis we place on developing our private markets assets has evolved even further.
"Therefore," he added, "it has become even more critical to create value in the individual assets at the micro-level."