There will be no let-up in the capital flowing into European real estate in 2015, particularly equity from Asia and North American opportunity funds, according to Emerging Trends in Real Estate Europe, a forecast published jointly by the Urban Land Institute (ULI) and PwC.
The report – an annual one, based on surveys and interviews with more than 500 major real estate players – found 70% of investors expect more equity and debt will flow into their markets this year. “It is easier to get capital than to find good deals,” said one of the survey’s respondents. Almost two-thirds think core assets are overpriced and that they will need to take on more risk to achieve required returns in 2015.
Lisette Van Doorn, chief executive of the ULI Europe, said:
“As confidence has returned to global real estate markets over recent years, there has been a progressive movement up the risk curve. Investors have found prime assets expensive and hard to source, and have in turn looked to find new opportunities in recovering secondary cities, secondary assets and development opportunities, as well as new or alternative real estate classes. The trend has been prevalent in the U.S. for a few years and was first highlighted in last year’s Emerging Trends Europe report when investors were looking at Ireland and Spain. However, this year’s report sees this sentiment gather pace with Athens, Amsterdam, Birmingham and Lisbon all being cited as potential hot spots of interest.”
And Emerging Trends’ top five picks for investment prospects this year reflect an emphasis on Europe’s mixture of stable, safe havens and opportunistic recovery plays. Berlin was voted number one, followed by Dublin, Madrid, Hamburg and, in a remarkable zoom up the charts, Athens. Respondents in the recovering economies – UK, Ireland, Spain, Portugal, Greece and the Netherlands – are noticeably upbeat about their prospects and profitability this year.
However, the optimism – and capital – is not evenly spread across Europe. Credit is expected to ease further in the bigger markets of Northern Europe and in Southern Europe; the Nordics and Central and Eastern Europe are a bit less positive about this. And in Russia, the conflict with Ukraine and economic sanctions are taking their toll – 56% of repondents expect there to be substantially less debt available in 2015.
Simon Hardwick, real estate partner at PwC Legal and one of the authors of the report, said:
“Real estate investors will face a tricky balancing act in 2015. The market is awash with capital surging into Europe from around the world. On the face of it, this is a nice problem to have, but we expect to see prices continuing to rise due to a shortage of assets. And despite an uncertain economic climate across Europe, investors will have to look beyond the major markets to secondary cities and assets they may not have considered before. This presents both an opportunity and a challenge.