Real estate investors should focus on preserving income streams in 2019, while the logistics and retail sectors offer opportunities in Europe and Asia, according to new research published on Thursday by Savills Investment Management.
In its 2019 Outlook report, the investment manager says that despite the uncertainty of rising interest rates, trade protectionism, the Italian budget and Brexit, ‘reliable' indicators point to continued growth for most developed economies in 2019.
Kiran Patel, global CIO and acting global CEO at Savills IM, commented: ‘European real estate markets performed strongly in 2018 and there is scope for the continent’s economy to maintain momentum in 2019. But the cycle is clearly at a mature stage and, given a current backdrop that includes political tensions across most European countries and the ongoing uncertainty in the UK around Brexit, investors might consider focusing on protecting and enhancing income streams.’
As best investor picks for 2019, Savills IM singles out the London office market, particularly multi-let London City office buildings, and logistics assets in the UK’s southeast, Big Six cities (Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester) plus Oxford and Cambridge.
Despite Brexit-related uncertainty, the London office market remained healthy in 2018, and low levels of supply and occupiers’ preference for new stock will likely keep rental values stable into 2019, Savills IM said.
Patel said there are still ‘highly promising’ investment opportunities in Europe, particularly in the retail and logistics sectors. ‘In our view, we believe that, now is not the time to take major risks, and investing for stable income in good quality properties in established locations, commensurate with achievable returns, would be a better risk-adjusted profile to adopt.’
Asia’s long-term fundamentals in terms of population growth, prosperity and urbanisation are superior to those in Europe, Patel said, and should lead to ‘increasing occupier demand, while a growing middle class also drives demand for retail space and logistics via growing e-commerce. With Asian markets at all stages of evolution from emerging to established, many opportunities for core-plus/value-add real estate investing are seen as arising’.
Savills IM raised a record €2.6 bn in 2018 and achieved a new AUM high of €18.3 bn on the back of transaction volumes of €4.2 bn.