Is European property in a healthy space in 2017? And which cities are topping the safe haven list?
Germany has emerged as Europe’s new safe haven for capital. Four of the continent’s top five investment cities are in the world’s fourth-largest economy, a new research report has announced. Emerging Trends in Real Estate: Europe 2017 is a joint survey by global auditing firm PricewaterhouseCoopers (PwC) and nonprofit research and education organisation Urban Land Institute. The report provides an outlook on real estate across Europe for 2017 and beyond.
Project leader and PwC survey director Gareth Lewis says that while there is a general post-Brexit sentiment towards the UK, investors continue to see value in real estate across many parts of Europe. However, return expectations are being scaled down and the importance of active asset management as a means to access income is being accentuated. Says Lewis, “In this risk-averse climate in which many real estate investors are clearly willing to sacrifice yield for lower risk, Germany is widely regarded as the new haven for capital. What is clear, after taking the pulse of the industry, is that below the surface there are complex and significant influences at play beyond today’s geopolitical issues.”
FAIR OR OVERVALUED?
The report reveals that there is a fair division between investors believing prime real estate in Europe is fairly priced and those fearing it is overvalued. Despite the mixed views, it also reflects that equity continues flowing into Europe from around the world and from all types of investors.
Lewis says the report ranks the real estate markets in major European cities according to their overall investment and development prospects, with Berlin claiming the top position followed by Hamburg, Frankfurt, Dublin and Munich. Despite the political and economic uncertainties – including the impact Brexit will have – the industry was upbeat about most of its major markets.
Germany’s domination prompted one pan- European investor to quip that the country had replaced the UK as Europe’s number one safe haven.
NORDIC SAFE HAVENS
Meanwhile Lewis suggests that the Nordic countries (Denmark, Finland, Iceland, Norway and Sweden) are emerging as another new safe haven. “Good demographics, growing economies and a high quality of life are making the Nordics a destination for global capital.”
While the PwC and Urban Land Institute report is comprehensive, it is not the exclusive view for European property investments. Monarch & Co CEO James Bowling says that in emerging from the economic difficulties that forced a European Union (EU) and International Monetary Fund (IMF) bailout in 2011, Portugal’s various structural reform initiatives have revived its property market. Monarch & Co offers residency and citizenship programmes, investment properties and capital investment opportunities in handpicked countries.
In seeking long-term growth, he says, the Portuguese government drastically changed its historically pro-tenant leasing market in 2012. This has bolstered the investment market by giving landlords more incentive to invest.
The country also launched a residency and citizenship programme that allows non-EU nationals to acquire citizenship in exchange for a minimum €500,000 real estate investment. Bowling says government statistics released late last year reflect the programme has contributed more than €2bn to the economy with €1.89bn being invested into the real estate market. The knock-on effect has been a rise in local and international developers and investors to the Iberian country.
Says Bowling: “For investors looking to diversify their portfolios and enjoy the benefits of the European lifestyle, Portugal is undoubtedly a great solution.”
Lewis acknowledges that the report raises more questions than answers, specifically on whether or not the European industry is prepared to innovate; whether it will be current real estate leaders or new players who meet the challenges; whether it is entering a period of change or if the market is merely redefining what constitutes good real estate.
“Our report reveals an industry starting to look beyond traditional boundaries, perhaps realising it does not have all the answers. However, if it is to thrive in a fast-changing and uncertain world, it will need to make bold decisions,” he says.
Looking ahead to 2030, Lewis says there are changes altering society and the industry’s view of the future role of the built environment and the property cycle as it affects supply, occupation, ownership and investment. “The European industry is experiencing a seismic shift in its centre of gravity – from real estate as a financial asset to a product and more significantly, to real estate as a service.”
Top markets for real estate investment and development in 2017
The German capital scored top in all four survey categories (investment, development, prospects for rental growth and prospects for capital growth). It has established itself as a large, highly liquid real estate market with global appeal. Despite high prices, office and housing markets are thriving.
The city’s success follows local government investment into transport and new high-quality urban districts along the waterfront. A 4% rental growth explains the popularity of its office market.
The city climbed 11 places in the year under review, offering both a stable market post-Brexit and an office destination for bankers relocating from the City of London.
Slipping one place to number four, Dublin is still viewed as a Brexit beneficiary. Continued economic growth, foreign direct investment and strong housing demand were key in Dublin’s prospects for 2017.
Investors perceived Munich “as a perennially solid bet”. Respondents indicated buying property in cities such as Munich allowed investors to assume more risk without worrying about the basic security of their investment.