Geopo­lit­i­cal uncer­tainty in Euro­pean real es­tate

Financial Mirror (Cyprus) - - FRONT PAGE -

A post-EU ref­er­en­dum slump in sen­ti­ment to­wards the UK, geopo­lit­i­cal uncer­tainty across Europe and com­plex changes in the role of the built en­vi­ron­ment are sig­nif­i­cantly in­flu­enc­ing the out­look for Euro­pean real es­tate in 2017, ac­cord­ing to in­dus­try lead­ers sur­veyed in ‘ Emerg­ing Trends in Real Es­tate Europe 2017’.

The an­nual fore­cast pub­lished jointly by the Ur­ban Land In­sti­tute (ULI) and PwC is based on the opin­ions of al­most 800 in­ter­na­tion­ally renowned real es­tate pro­fes­sion­als in Europe, in­clud­ing in­vestors, de­vel­op­ers, lenders, agents and con­sul­tants.

Although in­vestors con­tinue to see value in real es­tate across many parts of Europe, re­turn expectations are be­ing scaled down, and the im­por­tance of ac­tive as­set man­age­ment and in­vest­ment in real es­tate ‘al­ter­na­tives’ as a means to ac­cess in­come is be­ing talked up.

This year, the rank­ing ta­ble is based on the scored awarded for both in­vest­ment and de­vel­op­ment prospects. Ac­cord­ing to the re­port, the top five Euro­pean mar­kets for real es­tate in­vest­ment and de­vel­op­ment in 2017 are pre­dicted to be:

1. Ber­lin – The Ger­man cap­i­tal scored the high­est on all four sur­vey cat­e­gories: in­vest­ment, de­vel­op­ment, and prospects for rental and cap­i­tal growth. Ber­lin has es­tab­lished it­self as a large, highly-liq­uid real es­tate mar­ket with global ap­peal—ev­i­denced by the EUR 3.9 bil­lion in­vested in the city in the first six months of 2016. De­spite steep pric­ing, the of­fice and hous­ing mar­kets are still thriv­ing due to their strong growth po­ten­tial.

2. Ham­burg – At num­ber two for the sec­ond year run­ning, Ham­burg’s suc­cess is due in part to the lo­cal gov­ern­ment’s mas­sive in­vest­ment in trans­port and the de­vel­op­ment of new, high qual­ity ur­ban dis­tricts along its wa­ter­front. Ham­burg’s live­abil­ity and its di­verse econ­omy, which en­com­passes man­u­fac­tur­ing, me­dia, life sciences, and in­for­ma­tion tech­nol­ogy, also bol­ster its high stand­ing. Rental growth of 4% over the past year helps to ex­plain the pop­u­lar­ity of Ham­burg’s of­fice mar­ket, to­gether with yields of 3.75% for prime as­sets, which although ex­pen­sive are still cheaper than those achieved in the city’s Ger­man ri­val, Mu­nich.

3. Frank­furt – In­vestors are largely op­ti­mistic about Frank­furt, which has climbed 11 places to num­ber three. Not only is it con­sid­ered a sta­ble mar­ket amid post-Brexit uncer­tainty, but it is also pre­dicted to pro­vide an of­fice des­ti­na­tion for bankers re­lo­cat­ing from the City of Lon­don. How­ever, ques­tions re­main about the po­ten­tial con­se­quences of re­lo­cat­ing large re­tail bank­ing op­er­a­tions to Frank­furt, as Germany is al­ready over-banked.

4. Dublin – While it has slipped one place to num­ber four, Dublin is still seen to be an over­all ben­e­fi­ciary of Brexit. One pri­vate eq­uity in­vestor pre­dicted that while the city will likely not pick up fi­nan­cial ser­vices head­quar­ters from the UK, it will pick up back-of­fice func­tions, which could still have a big ef­fect on the mar­ket. Con­tin­ued eco­nomic growth, for­eign di­rect in­vest­ment, and strong de­mand in the hous­ing mar­ket also play an im­por­tant role in Dublin’s prospects for 2017.

5. Mu­nich – Round­ing out Germany’s near­dom­i­nance in the top five is Mu­nich. In­vestors per­ceive Mu­nich as a peren­ni­ally solid bet, a qual­ity that is par­tic­u­larly valu­able in a risk-off en­vi­ron­ment. Sur­vey re­spon­dents in­di­cated that buy­ing prop­erty in cities like Mu­nich al­lows in­vestors to take on more risk with­out wor­ry­ing over the ba­sic se­cu­rity of their in­vest­ment. While va­cancy rates in Mu­nich are at a 14-year low of 4.8%, find­ing as­sets to buy is chal­leng­ing and the city re­mains one of the prici­est mar­kets in Europe.

Lon­don has fallen from num­ber 11 in 2016 to num­ber 27 in 2017 in the Emerg­ing Trends Europe city rank­ings for in­vest­ment and de­vel­op­ment prospects. How­ever, it is still Europe’s pri­mary mag­net for global cap­i­tal, at­tract­ing EUR 31 bil­lion of cap­i­tal in­flows in the 12 months to end Septem­ber 2016, ac­cord­ing to pro­vi­sional es­ti­mates by Real Cap­i­tal An­a­lyt­ics.

Based on sur­veys un­der­taken in the im­me­di­ate af­ter­math of the EU Ref­er­en­dum vote, 90% of re­spon­dents pre­dict that UK in­vest­ment and prop­erty val­ues will fall as a re­sult of the UK ref­er­en­dum vote to leave the Euro­pean Union.

But de­spite the uncer­tainty, in­ter­views with the in­dus­try’s se­nior lead­ers re­veal that most have faith in Lon­don’s medium- to long-term fu­ture as a global city and there were fre­quent ref­er­ences to the op­por­tu­ni­ties pre­sented in the UK’s re­gional cites given the im­pact of de­vo­lu­tion­driven in­fra­struc­ture in­vest­ment and the re­cent de­val­u­a­tion in ster­ling.

In this ‘risk-off’ cli­mate, in which many real es­tate in­vestors are clearly will­ing to sac­ri­fice some yield for lower risk, Germany is widely re­garded as the new haven for cap­i­tal, with Ber­lin, Ham­burg, Frank­furt and Mu­nich tak­ing top spots for in­vest­ment and de­vel­op­ment prospects in the Emerg­ing Trends Europe city rank­ings for 2017. Dublin, ranked at num­ber four and many of the Nordic cities, in­clud­ing Copen­hagen, Stock­holm and Oslo are also favoured. The UK’s sec­ond-tier cities are also feel­ing the ef­fects of the EU ref­er­en­dum, with re­spon­dents show­ing low con­fi­dence in the near-term in­vest­ment prospects of Birm­ing­ham, Manchester and Ed­in­burgh for 2017.

Ac­cord­ing to the re­port, in­ter­na­tional po­lit­i­cal in­sta­bil­ity is ex­pected to pose sig­nif­i­cant chal­lenges in the com­ing year, with 89% of re­spon­dents list­ing it as their top con­cern for 2017. Forth­com­ing elec­tions in France, Germany and the Nether­lands, as well as con­cerns about mi­gra­tion and ter­ror­ism, add to this uncertain out­look. Some 46% of re­spon­dents be­lieve that the mi­gra­tion cri­sis will get worse in the com­ing year, and in­ter­vie­wees re­ported ter­ror­ism as a key threat to the se­cu­rity of pub­lic spa­ces and pri­vate build­ings. This in­ter­na­tional po­lit­i­cal in­sta­bil­ity is not ex­pected to dis­si­pate quickly: nearly two-thirds of sur­vey re­spon­dents ex­pect po­lit­i­cal uncer­tainty in Europe to worsen over the next three to five years.

But as well as the geopo­lit­i­cal risks and eco­nomic growth prospects in both the short and long-term, the re­port draws at­ten­tion to a num­ber of po­ten­tially more sig­nif­i­cant in­flu­ences that are tax­ing the minds of Europe’s real es­tate lead­ers.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.