The European Association for Investors in Non-Listed Real Estate Vehicles, aka INREV, held its second North American conference on the eve of Scotland’s historic vote for independence last week.
Inevitably, the impacts the vote would have on the European Union had been heavily debated. But, for at least one speaker in New York, the vote was “almost immaterial.”
“Good luck to them, frankly. Good luck,” said Noel Manns, a principal with Europa Capital, waiving a mock goodbye to the Scots and drawing muted laughs from the audience. “It’s 1 percent of EU GDP.”
Speakers at the INREV event in addition focused on Europe’s post-recession recovery – opportunities across the region, and who is investing where and why. The US was identified as a leader among investors on the continent.
Beyond the Scottish vote, panelists acknowledged intensified geopolitical risk that could impact Europe, and Manns elaborated on what he deemed the “real threats.”
“Putin playing games,” he said, adding that the other was the instability and conflict in the Middle East.
Still, the relative strength of Europe is a far cry from the situation about 15 months ago when “the question was, will the Eurozone collapse,” Mahdi Mokrane, head of European research and strategy at LaSalle Investment Management, reminded the audience.
Mokrane characterized Europe today as rich and densely populated, liquid and transparent, but with significant real estate development restrictions – what he called a “differentiating factor” with the US.
But investment volume is coming back strongly. Total investment in commercial real estate over the year ending Q2 2014 was €184bn – the highest level since 2008. Germany, the UK and France, which posted 21%, 29% and 49% year-over-year investment gains in the first half of 2014, respectively, have been a particular focus for investors.
“I don’t think I’ve met with an investor telling me I want to decrease my allocation” in European real estate, Mokrane said.
Two-thirds of all investments in Europe during the first half of this year came from US-based investors, he noted, and to that point, Manns later explained that when the European investors 12 months ago were still running away from opportunities, American investors were picking up the slack.
“I think we’ve got to thank all the American investors, particularly investors in value-add opportunities,” he said. “There’s a lot of American money and that’s because the Europeans aren’t providing the money… so thank you.”
Gateway cities have attracted the bulk of capital (see slide 1). Mokrane highlighted London, Paris, Munich, Stockholm and Frankfurt as the “top five” pockets of investor interest, while “secondary cities” such as Madrid, Barcelona, Milan, Vienna and Warsaw are among those “growing fast, thanks to technology, infrastructure and demographics.”
Office and industrial properties in the southeast of the UK offer attractive growth prospects for mezzanine debt and whole loan lenders, while “Spanish offices look extremely cheap in a European context,” Mokrane added.
Matthias Thomas, CEO of INREV, highlighted the discrepancies in performance among the various European nations, showing major differences in GDP growth among them (see slide 2). Germany and the UK are ahead of the pack at present.
Across continents, US and Asian core funds are outperforming European funds, while US non-core funds are outperforming their European and Asian counterparts on average annualized returns by a huge margin – 15.3% versus 2.6% and 8%, respectfully. Thomas called the discrepancy “amazing.”
As for Scotland, the eventual “no” vote could indeed prove to be “almost” immaterial.