The year is not over yet, but the contours of how the European real estate sector will shape up in 2017 are already becoming clear.
Predictably, the geopolitical situation worldwide and Donald Trump’s victory in the US presidential elections dominated PropertyEU’s Outlook Investment Briefing in London last week and these topics will no doubt dominate the agenda once more when the Events team hits Frankfurt next week and Madrid a week later.
Despite the growing political uncertainties, the news is not at all bad for the European real estate industry. Trump’s victory has downgraded Brexit from major problem to minor event, Michael Walton, CEO of Rynda Property Investors told the briefing which was held at the City of London offices of BNP Paribas Real Estate. He put it this way: ‘Trump has deprioritised Brexit.’
Foreign institutions that had stopped dead in their tracks after the surprise referendum result, have since abandoned their wait-and-see attitude and are now investing again, he explained.
Renewed appetite for UK
Large Asian institutions are a case in point. Shortly after the Brexit outcome, they decided not to invest in the UK and to look at the US instead, but now that the UK has dealt with Brexit as well as it could, they have decided to look back at the UK after all, Will Rowson, partner at Hodes Weill & Associates, told the packed briefing. ‘Part of that interest is due to currency, as a 20% discount is a good place to start, but the fact is that positive sentiment towards the UK has actually increased after Brexit.’
Not only are Asian investors displaying renewed appetite for the UK: Middle Eastern players likewise have fresh confidence that the UK will remain a stable place for them to park their cash, according to Simon Williams, head of investment at BNP Paribas Real Estate. Another encouraging sign is that German funds are also looking at the UK again due to the lower pound sterling: ‘They are usually extremely canny and look for value for money,’ he noted.
The Continent is also looking more attractive to Asian and Middle Eastern investors and it is understood that BNP Paribas Real Estate expects to seal deals worth almost €2 bn of deals from these capital sources by the end of the year or early 2017. European commercial real estate will remain an important focus for international institutional investors throughout the next 12 months, the company’s CEO Thierry Laroue Pont told PropertyEU in a recent interview.
Radical shift in hot spots
Anne Breen, head of real estate research and strategy at Standard Life Investments, agrees. ‘In virtually all core global markets, the opportunities for attractive returns from real estate relative to other asset classes such as bonds and equities, will continue to drive appetite. However, there’s no doubt that geopolitics and global economics will, more than ever, drive decisions about regional preferences for investors and we may see some radical shifts in the “hot spots”.’
Breen believes that countries demonstrating social, political and economic continuity during a period of change for global markets, will become increasingly popular in the next year. Certain European cities could also become increasingly dominant, she claims. ‘In our view, 2017 will be a good year for Germany, Sweden and the Netherlands in core Europe, while Spain and Portugal will continue to move through the recovery cycle, albeit at a slower rate than 2016.’
Logistics is most ‘politics-free’ sector
In terms of sectors, Breen foresees a move towards growth sectors on the Continent. At the same time, modern logistics property in the UK is likely to attract investor attention, she added. That theme was also picked up at the PropertyEU Outlook Briefing in London. Indeed, the panellists selected logistics as the ‘most politics-free’ of all commercial real estate sectors.
The investor base has widened for the logistics sector and it now includes institutions and companies that until recently would only have looked at central London offices, David Inskip, director of EMEA strategy and research at CBRE Global Investors, told the briefing. ‘Investors have reached a point where they are cycle-aware and know they have to look at the big themes, and big box logistics is one of them. Looking ahead I would definitely pick out logistics as the star performer for 2017.’
The first bets are on the table. In the coming weeks, the PropertyEU editorial team will highlight the top picks of our expert panellists elsewhere in Europe.
Judi Seebus
Editor in Chief