Where property finance people see opportunities in Europe

Investors and lenders aiming to identify higher-yielding opportunities in European real estate should explore niche markets across the continent rather than focus on individual countries. This was the view of equity and debt professionals speaking at the Commercial Real Estate Finance Council Europe’s Spring conference in London on 16 May.

During a panel discussion, one speaker highlighted secondary retail in the greater Madrid area as a compelling niche in the Spanish market. Another panellist identified office development in supply-constrained Dublin as a growth area.

Although panellists acknowledged the slowdown in the UK owing to Brexit uncertainty, they argued that pockets of the market would provide opportunities for those seeking above-average yields. “It might mean exploring micro-sectors, such as private rented residential, healthcare or self-storage,” said Stephen Morita, director at real estate advisory firm Eastdil Secured.

Morita added that the lack of development in London’s office market, caused by the uncertain political backdrop, had created an opportunity for those prepared to provide speculative construction finance.

Christophe Kuhbier, managing director at Henderson Park, said the UK’s nascent build-to-rent residential sector also presented investors and lenders with an opportunity “to create an asset class and bring it to stabilisation in a context of residential sales being slowed down by Brexit”.

Panellists agreed that the French market was dominated by domestic banks. However, one argued that financing opportunities were being created by foreign investors seeking smaller loans for properties in peripheral locations that are likely to fall below the French banks’ radar.

The sheer size of the German market means lenders can find financing deals, notwithstanding the strength of the country’s banking sector. “Germany has a strong underlying economy, with real estate investors focused across several major cities in a more fragmented market than France,” said Morita. “It means there are more opportunities to find supply/demand imbalances and pockets of arbitrage.”

Panellists agreed that European commercial real estate markets were benefiting from a steady supply of debt finance. Ray Taylor, principal in KKR’s real estate division, identified two trends: “Firstly, lenders such as German banks are moving into new markets. And, secondly, companies you would not have once expected to have a lending platform now do.”

Another panellist noted the evolution of alternative lenders, which he said had grown in size, in geographical scope and in the breadth of lending products on offer.