Real es­tate sec­tor fo­cuses on con­tend­ing with dis­rup­tive forces and meet­ing needs of oc­cu­piers

Financial Mirror (Cyprus) - - FRONT PAGE -

Rapidly chang­ing de­mands of oc­cu­piers and the dis­rup­tive forces of tech­nol­ogy, de­mo­graph­ics, so­cial change, and rapid ur­ban­i­sa­tion are per­me­at­ing the Euro­pean real es­tate value chain, ac­cord­ing to Emerg­ing Trends in Real Es­tate Europe 2016: Be­yond the Cap­i­tal, a fore­cast pub­lished jointly by the Ur­ban Land In­sti­tute (ULI) and PwC.

Th­ese ground-level dis­rup­tions have led to in­vestors fo­cus­ing on cities and as­sets rather than coun­tries. This is also vis­i­ble in in­vestors demon­strat­ing more in­ter­est in al­ter­na­tive, op­er­a­tional sec­tors that have ben­e­fited from rapid ur­ban­i­sa­tion and de­mo­graphic shifts, such as health­care, ho­tels, stu­dent ac­com­mo­da­tion and data cen­tres. About 41% of sur­vey re­spon­dents would con­sider in­vest­ing in al­ter­na­tive sec­tors, com­pared to just 28% in last year’s sur­vey. The high street retail and lo­gis­tics sec­tors, which have ben­e­fited from tech­no­log­i­cal ad­vances and im­prov­ing eco­nomic con­di­tions, are also pre­dicted to fare well in 2016.

De­vel­op­ment is also ex­pected to cre­ate value in 2016, with 78% of re­spon­dents cit­ing de­vel­op­ment as an at­trac­tive way to ac­quire prime as­sets. More pro­gres­sive de­vel­op­ers and in­vestors are in­no­vat­ing in an at­tempt to meet the needs of in­creas­ingly in­formed and de­mand­ing oc­cu­piers. The prop­erty de­vel­op­ers, in­vestors and oper­a­tors lead­ing the pack are pay­ing more at­ten­tion to the role the phys­i­cal work­place plays in tal­ent man­age­ment and work­place pro­duc­tiv­ity.

“In­vestors are get­ting more cre­ative in try­ing to ac­cess fu­ture prime as­sets at rea­son­able prices through more fo­cus on al­ter­na­tives and de­vel­op­ment,” said ULI Europe CEO Lisette van Doorn.

“They take more risk on the short term to ful­fil their long term ob­jec­tive for core as­sets. At the same time, more and more play­ers in the real es­tate in­dus­try are start­ing to ad­dress the needs of oc­cu­piers, who are seek­ing har­mony be­tween their work­places and their life­style needs. Some of the in­dus­try’s big­gest chal­lenges right now are how to be­come less about brick and mor­tar and more about ser­vice and the im­pli­ca­tions this may have for the tra­di­tional busi­ness mod­els of real es­tate oper­a­tors.”

“Low in­ter­est rates, and the weight of cap­i­tal bear­ing down on Euro­pean real es­tate, mean that most re­main bullish about the in­dus­try’s busi­ness prospects in 2016,” said PwC di­rec­tor Gareth Lewis. “But they ac­knowl­edge that the global field for real es­tate is in­creas­ingly com­pet­i­tive, and if the cur­rent wall of cap­i­tal re­cedes, there will be an even stronger fo­cus on un­der­ly­ing mar­ket fun­da­men­tals, ac­tive as­set man­age­ment and op­er­a­tional skills.”

Ac­cord­ing to the re­port, the five lead­ing cities for in­vest­ment prospects in 2016 are Ber­lin, fol­lowed by Ham­burg, Dublin, Madrid and Copen­hagen. Many in­ter­vie­wees ex­pect the Ger­man cap­i­tal to thrive well be­yond 2016, based on its young pop­u­la­tion and its grow­ing rep­u­ta­tion as a tech­nol­ogy and cul­tural cen­tre, as well as the land avail­able for de­vel­op­ment.

Lon­don has slipped from the top ten, sug­gest­ing that in­vestors are see­ing bet­ter growth prospects in re­gional UK and Euro­pean cities in the short term. In the long term, how­ever, the UK cap­i­tal re­mains the first choice in Europe for many in­ter­na­tional in­vestors fo­cused on wealth preser­va­tion with liq­uid­ity and the scale of the mar­ket, to­gether with rel­a­tively ro­bust eco­nomic per­for­mance.

The top five Euro­pean real es­tate in­vest­ment mar­kets in 2016 are pre­dicted to be:

– Main­tain­ing last year’s num­ber one po­si­tion, Ger­many’s cap­i­tal tops the ta­ble for both in­vest­ment and de­vel­op­ment prospects in 2016. An in­flux of the cre­ative in­dus­try and the tech­nol­ogy sec­tor has led to the strong­est of­fice up­take the city has ever seen. A young, in­ter­na­tional and di­verse em­ployee base and a lower cost of liv­ing have also driven the city’s progress. Ber­lin’s sta­tus as a cul­tural cen­tre and a trendy lo­ca­tion has boosted hous­ing and retail prospects as well.

– Ham­burg, which has taken the se­cond spot from Dublin, has proven a dy­namic city that re­sponds to the needs of fu­ture oc­cu­piers. The city boasts a di­verse oc­cu­pier base, with de­mand for of­fices com­ing from the me­dia, busi­ness ser­vices, and trade sec­tors, and many SMEs.

– While Dublin is still at­tract­ing plenty of cap­i­tal, the con­sen­sus among in­ter­vie­wees is that the Ir­ish cap­i­tal has al­ready reached its peak for op­por­tunis­tic re­turns. Those who have al­ready in­vested in the city or who choose to in­vest in the very near term are likely to see the high­est to­tal

1. Ber­lin

2. Ham­burg

3. Dublin

re­turns. Dublin of­fices are ex­pected to see rental growth, but the de­mand for in­creased of­fice space is un­likely to be sat­is­fied for sev­eral years.

– As the Span­ish econ­omy has im­proved, both in­sti­tu­tional and op­por­tunis­tic in­vestors have flocked to Madrid. The city was Europe’s fifth most ac­tive real es­tate mar­ket in the four quar­ters end­ing Q3 2015. How­ever, the city’s ris­ing prices and sub-4 per­cent prime of­fice yields could de­ter in­vestors in 2016.

– Once con­sid­ered a dis­tressed mar­ket, Copen­hagen is now note­wor­thy for its in­vest­ment op­por­tu­ni­ties. The Dan­ish cap­i­tal has seen de­vel­op­ment in the biotech sec­tor, which has cre­ated an en­vi­ron­ment of strong in­tel­lec­tual cap­i­tal. The city’s of­fice va­cancy rate has been con­tained, in part due to strong of­fice-to-res­i­den­tial con­ver­sion ac­tiv­ity. While yields are be­ing com­pressed, many of those sur­veyed still con­sider Den­mark an at­trac­tive mar­ket for of­fice, retail and res­i­den­tial.

4. Madrid

5. Copen­hagen

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