More change to come for prop­erty mar­kets in 2019

Irish Independent - Business Week - - APPOINTMENTS -

Ev­ery­one op­er­at­ing in the prop­erty mar­ket should be well read on trends in the in­dus­try, not least to bring ‘added value’ to meet­ings with de­vel­op­ers and other clients. There is no bet­ter source of in­for­ma­tion than the ‘Emerg­ing Trends in Real Es­tate: Europe’, a joint pub­li­ca­tion by The Ur­ban Land In­sti­tute (ULI) and PwC. The fore­cast for 2019 points to some sur­pris­ing trends, and given that the re­port is based on the opin­ions of 885 real es­tate pro­fes­sion­als, in­vestors, fund man­agers, fi­nanciers and de­vel­op­ers, it de­serves at­ten­tion. Here are some of the points that caught my eye.

As a mea­sure of the dis­rup­tion in re­tail­ing caused by on­line com­pe­ti­tion, in a ta­ble rat­ing the prospects for 27 as­set classes; city cen­tre shop­ping cen­tres, re­tail parks and out-of-town shop­ping cen­tres, hold the bot­tom three places re­spec­tively. Con­versely, the shift to on­line re­tail­ing sees lo­gis­tics rated at num­ber two. Co-liv­ing, ie. res­i­den­tial devel­op­ment with smaller unit sizes but en­hanced com­mu­nity fa­cil­i­ties such as meet­ing spa­ces, gyms, cin­e­mas and concierges, is rated as hav­ing the best prospects for both in­vest­ment and devel­op­ment. This type of devel­op­ment is rare here (our stu­dent hous­ing is prob­a­bly clos­est) – but watch out for it be­com­ing a fea­ture in our cities.

The re­port points to an­other shift in the mar­ket in that, whilst there is agree­ment that Euro­pean mar­kets are at, or close to, the top of the cy­cle, in­stead of in­vestors set­tling for se­condary as­sets to try and get value, they are mov­ing into al­ter­na­tive mar­kets. Thus we see sec­tors such as re­tire­ment/ as­sisted liv­ing, ser­viced of­fices, data cen­tres, stu­dent hous­ing, pri­vate rented res­i­den­tial, ser­viced apart­ments, housebuilding and so­cial hous­ing mak­ing up the top 10 rated sec­tors. The em­pha­sis on res­i­den­tial devel­op­ment is in­ter­est­ing, and re­flects a short­age of hous­ing in cities across Europe.

In the of­fice sec­tor, the ef­fect of co-work­ing can­not be ig­nored. This is the rent­ing of desk spa­ces or larger flex­i­ble spa­ces on short leases, with com­mu­nal fa­cil­i­ties. This sub-sec­tor ac­counted for 15pc of all of­fice take-up in Lon­don last year, and is grow­ing. The re­port says that co-work­ing is chang­ing the way oc­cu­piers use space and will lead to re­duced space re­quire­ments over the long-term. Co-work­ing is chang­ing the na­ture of cor­po­rates’ re­la­tion­ships with land­lords, is get­ting into the agents’ space, and is re­ferred to as “the Ama­zon of the of­fice mar­ket”. The of­fice mar­ket is un­der­go­ing a struc­tural change, sim­i­lar to that ex­pe­ri­enced in re­tail­ing. Prop­erty agents take note!

The re­port pre­dicts an in­creas­ing pace of ur­ban­i­sa­tion across the con­ti­nent. In a rank­ing of the over­all prospects for in­vest­ment and devel­op­ment in 31 cities, Dublin is third. Lis­bon and Berlin are rated above Dublin, but Lon­don, where Brexit is­sues are weigh­ing heav­ily on the mar­ket, is ranked at 29. UK provin­cial cities like Manch­ester and Birm­ing­ham are also pre­dicted to per­form rel­a­tively poorly.

The re­port points out that Lon­don’s po­si­tion is para­dox­i­cal in that, de­spite Europe’s big­gest and most liq­uid real es­tate mar­ket, be­ing ranked rel­a­tively poorly for last year, money con­tin­ued to flow in. This was largely driven by Asian buy­ers seek­ing large as­sets and ex­ploit­ing weaker Ster­ling. In­vest­ment spend­ing in the year to the end of Q3 2018, was €20bn in Lon­don, and the next high­est city is Paris at €12bn.

An­other slight sur­prise is that Europe’s prop­erty in­dus­try lead­ers rate “trans­port con­nec­tiv­ity”

(road, rail and air­ports) as the most im­por­tant fac­tor in choos­ing where to de­velop and in­vest. Avail­abil­ity of as­sets, fore­cast re­turns, and mar­ket size and liq­uid­ity, are next. I sus­pect the sev­enth place rank­ing of dig­i­tal con­nec­tiv­ity is down to an as­sump­tion that it’s is a given, at this stage.

The full re­port is avail­able at europe.uli.org and every prop­erty pro­fes­sional should be read­ing it. I sug­gest ask­ing your grad­u­ates to present a sum­mary of it to your firm, some lunchtime.

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