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Emerging Trends: Brexit takes toll on London’s 2017 investment prospects

London has crashed down the rankings of European investment destinations, according to the Emerging Trends in Real Estate Europe 2017 report, published today (3 November).

London has crashed down the rankings of European investment destinations, according to the Emerging Trends in Real Estate Europe 2017 report, published today (3 November).

Reflecting the post EU referendum views of the almost 800 real estate professionals interviewed or surveyed for the report, the UK capital fell from 11th place last year to 27th this time, fourth from bottom above Turkey, Greece and Russia.

“Number 27 is an extraordinarily low ranking for Europe’s largest and most liquid real estate market, but London’s fall of 16 places speaks volumes about the potency of the Brexit effect”, the report says.

In the search for safe havens, German cities will be Europe’s top investment and development destinations next year, the report finds.

Berlin, Hamburg, Frankfurt and Munich occupy four of the top five spots for 2017 prospects. The annual survey is published jointly by the Urban Land Institute and PwC.

Berlin is top for the second year in a row; Hamburg repeats its number two ranking from last year; Frankfurt jumps 11 places to number three pushing Dublin into fourth; while Munich holds steady at number five.

“This positive outlook for German cities comes in the aftermath of the EU referendum outcome, which has left investors and developers uncertain about the UK’s immediate and medium-term future. Ninety percent of industry leaders surveyed in Emerging Trends Europe predict that UK investment and property values will fall over the next 12 months,” says the report.

Emerging Trends Europe: Impact of Brexit on real estate 2017

Lisette van Doorn, ULI Europe CEO, added: “The fallout from the Brexit vote gives an extra boost to the already-strong German real estate market.”

“With considerable political and economic uncertainty in Europe, many real estate investors are willing to sacrifice some yield in return for lower risk. In this risk-off environment, the stability of German cities becomes even more attractive.”

Some 80 percent of respondents, who were interviewed and surveyed during July and August, put international political instability at their top concern in 2017, with forthcoming elections in the Netherlands, France and Germany next year adding to the uncertain outlook.

However, the industry does have faith in London’s continuing future, longer term, as a key global city, and reiterates that a wall of equity continues to target European real estate for its income yield in the global low interest rate environment.

The prospects for debt liquidity were slightly less positive, though respondents didn’t anticipate that core, stable assets will have a problem finding financing. Some 26 percent said development finance will be reined in.

Emerging Trends Europe 2017: Sources of debt

Banks in particular, were seen as under a degree of pressure and 33 percent believe their lending will fall compared to 15 percent last year – opening up more opportunities for alternative lenders.

“All banks have the same problem, which is raising capital and managing their existing capital situation,” said one German banker, who warned that the banking sector will struggle to cope with lending volumes given that capital requirements continue to rise.

“This is seen as a golden opportunity for non-bank lenders – including pension funds, insurance companies, debt funds or new lending platforms like crowdsourcing – with at least 64 percent anticipating that they will increase their exposure to the sector.