European real estate to continue to offer global relative value

European real estate is expected to maintain its allure for investors, according to new research by Europa Capital.

Taking prime office yields as a proxy for All-Property, European markets currently offer a spread of 350 basis points above fixed income assets, which compares favorably to the spread offered by North American (up to 260bps) and Asian markets (up to 240bps).

‘The bigger picture is that interest rates will rise slowly and remain historically low in both real and nominal terms,’ writes Vanessa Muscarà, head of research and strategy at Europa Capital, in a report entitled Paradigm shifts in European real estate. ‘Since core inflation in the US is far higher than the EU, at 4%, European real estate markets are likely to retain their top relative value ranking for the foreseeable future.’

Affordable housing is becoming a priority for investors, partly to meet social impact objectives. Investing in this sector and implementing renewable energy sources, using sustainable construction materials and prioritizing tenant wellness represent select ways to meet these goals. Given the limited supply of income producing assets, a significant share of investments is expected to be in forward funding development projects.

The institutionalization of the market is likely to create new investment opportunities including meeting the supply gap of logistics and rental accommodation as outlined above. ‘We may also see growing exposures towards‘customer-centric’ sectors requiring operational management such as senior living and student housing,’ Muscarà noted.


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