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MIPIM 2016: European CRE ‘walking a tightrope’

Political, economic and financial headwinds threaten to blow market off course, says Colliers

In a report released today at MIPIM 2016 in Cannes, Colliers International said that the bull market in European commercial property “rumbles on”. However, the report likened the continuing progress of the market to a tightrope walk as political, economic and financial headwinds threaten to blow it off course.

“Since mid 2013 the property industry has enjoyed a bullish market, however over the last six months since the Chinese share crisis, political, economic and financial volatility has given investors a cause for pause,” said Walter Boettcher, chief economist at Colliers, in the report entitled “A View from the Top”.

However, beyond this ‘pause’, a return to reasonably strong levels of activity looks likely as the drivers of the market over the last couple of years remain in place.

Cannes, France
Cannes, France

With continuing low interest rate expectations, the weight of capital targeting real estate, demographic pressures and the hunt for yield, European transaction volumes “are yet to show any significant decline”.

The report noted that demand for real estate is getting stronger. In 2013, 8.9 percent of institutional investors’ allocations went into real estate. This figure is expected to be almost 10 percent by the end of 2016, with a one percent increase equivalent to a funding increase of $360 billion.

For the time being it appears that prospects in continental Europe are stronger than in the UK. “Brexit is causing more uncertainty to investors in the UK than expected with many pausing and watching,” said Richard Divall, head of cross-border capital markets at Colliers.

With high pricing levels also having an impact in the UK, capital is shifting into the continent as fundamentals there improve and investors look to expand their real estate portfolios.

Another trend is the move to alternative assets where competition is lower.

“Direct investment into alternative property assets reached a new high of £28 billion in the UK in 2015, or 40 percent of total direct property investment,” said Boettcher.