The European property industry remains cautious but positive on the coming year, bolstered by an improving macroeconomic outlook for the eurozone and real estate’s continued attractiveness as an asset class, according to the Emerging Trends in Real Estate Europe 2018 survey.
However, respondents noted some concerns including the long-term impact of the UK’s exit from the EU and the increased difficulty sourcing core deals in a late-cycle market.
The annual forecast, jointly published by the Urban Land Institute and PwC, indicated that this year’s upturn in overall investment volumes and occupier demand across many of Europe’s major cities will continue through 2018. Equity and debt are expected to be just as plentiful as in 2017.
In addition, the 2017 election results in France and the Netherlands have restored some confidence in the political and economic backdrop to business. More than a quarter of the 800 leading European property professionals canvassed by the ULI and PwC see an improving political environment for 2018.
About half of survey respondents predict that profits and headcounts will increase next year, and 42 percent expect an increase in business confidence – a 10 percent jump from last year’s results. The bright outlook extends over the next three to five years although it is also clear the industry believes continental European markets are benefiting from a relative slide in sentiment towards the UK because of Brexit.
While the degree of Brexit-related pessimism has decreased considerably since last year’s report – and few question London’s long-term status as a destination for global capital – the uncertainty surrounding the terms of the UK’s departure from the EU is a source of widespread concern among real estate professionals.
As in the last few years, other key concerns for the industry centre on pricing and the availability of suitable core assets. Many industry players indicate a more measured approach to risk-taking in 2018 with debt increasingly seen by investors as relatively low-risk exposure to the sector in a late-cycle market.
For the fourth year in a row, Berlin has taken the top spot in Emerging Trends’ rankings of 31 cities, further establishing its dominance in the European property market and reflecting the industry’s view of Germany as a safe-haven for capital.
Frankfurt has risen to second place after a year of solid growth, much of which has come from the financial sector in the aftermath of Brexit. Tied with Frankfurt is Copenhagen, whose booming residential sector has captured the attention of the international real estate industry.
Meanwhile, logistics has firmly established itself as the most desirable mainstream sector for investors in 2018. Alternative residential sectors such as student housing, senior living, and healthcare are also seen as good bets, reflecting the growing appetite for relatively secure, long-term income.
The report also highlights the increasing complexity in how the industry conducts business, brought on by new customer demands and the concept of ‘space as a service’. These new requirements mean that real estate companies will require new skills to harness big data and new technology to improve the decision-making, management and valuation processes.
“Our conversations with industry leaders have demonstrated that technology is increasingly being viewed as one of the key trends affecting real estate,” said Lisette van Doorn, Chief Executive of ULI Europe.