Perchè investire in Europa?

di Thomas  Beyerle,  Catella Research


What a summer! A summer which – next to the traditional sea, beach and mountain experiences – brought one thing in particular: An unusual dynamic on the real estate markets – especially in the otherwise more quiet time of the year.

Are these indications for a stormy autumn? We don’t want to try and provide a weather forecast, but regarding real estate we are convinced: the dynamic will remain until the end of the year.

• In the past weeks, the current geopolitical risks have become evident, but the drive towards the real estate markets will in fact increase, in our opinion.

• It is also clear, that this more careful approach will attract a structurally rational investor base. What unites these investors is a more sober view on the coming quarters: the European economy will continue to recover, is currently in an excellent condition and will develop to an internationally desirable investment location. The fundamental parameters support the upwards trend of prices, which leads to a possible correction not being too sharp, as long as alternative investments become more attractive. The composition of the Total Return of the real estate investment will become more “cash-dependent” in the coming months.

• Regarding Brexit negotiations, at least some of the companies in London have begun to stir. The much-discussed alternatives of Frankfurt, Paris, Dublin or Luxemburg show more and more activity – in letting as well as development. The mid-year transaction volume shows an interesting structure: the „large markets” in particular attract a lot of interest from investors, but selectively, the liquidity of the markets cannot satisfy this demand.

• At the beginning of the third quarter, the interest in Europe has strongly increased. First and foremost from USA and Canada, but the largest comparative growth rates are from Asian investors, most of all South Korea and China. Besides London and continental destinations like Paris, Berlin or Madrid, Nordic countries (e.g. Norway, Finland) are experiencing a strong demand from abroad. A look at the regional market structures shows that the high global demand meets a heterogeneous, high-quality but increasingly limited supply in Europe.

• The investment pressure, caused by extremely tempting monetary politics causes measurable branching into investment vehicles as in Parking, Senior Housing, Student Housing, Shopping Centers or establishment of regional products as in “Dutch Housing” or “Spanish Retail” by investors. Alternative-debt-solutions are also becoming increasingly popular. This is particularly supported by media reports, in our opinion. The market figures display that this asset class is in the development phase and only represents a niche in the market.

Fundamental reasons for investing in the European commercial real estate markets :

Global market by investable product/properties – Transaction volumes of more than 117 bn. € across all sectors in H1 2017

Dynamic – Investment figures have been increasing continuously since 2009 with an stable or increasing tendency in the coming years. Europe’s economy is continuously growing with predicted

average growth of 1.8% for this year and 2018

Diversity of locations – many different markets in different countries with distinct investment opportunities in each country

Room for asset diversification – diverse markets with many alternative asset classes next to Office, Retail, Residential and Logistic (e.g. Student Housing, Parking or Health Care) with minimal investment risks. Real estate yields are still higher than alternative assets (government bonds etc.)

Very good financing conditions due to historic low refinancing rate of ECB. A more restrictive monetary policy is predicted in the mid of 2018

Geographical diversification – investment centres outside of the countries largest cities at second, third or fourth-tier locations can offer interesting investment prospects (“Hidden Champions”) with attractive yields

Shift towards the continent – certain dynamics can be expected in the continental real estate markets thanks to Brexit, which can be of advantage for real estate investors

Globalisation – Many cross-border investments thanks to the EU, which enables cross-border trade and foreign investment

The volume of forward deals has increased significantly in the last 3 years and core real estate is in brisk demand. Forward sales will remain in focus due to good construction activity and

shortage of prime standing stock

Political stability – The results of the latest elections in France, Italy and Netherlands show that the populist movement in Europe has failed. A decline in risk and positive growth can be expected.