New market realities
The European real estate industry is experiencing a seismic shift in its centre of gravity – from real estate as a financial asset, to real estate as a product and more significantly, to real estate as a service.
While there is a general post-Brexit slump in 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 talked up.
Emerging Trends in Real Estate®: Europe 2017 reveals an industry that is starting to look beyond traditional boundaries, perhaps realising it does not have all the answers at this point in time. But if real estate is to thrive in a fast-changing and uncertain world, its industry leaders will need to make bold decisions.
Emerging Trends in Real Estate Europe 2017
New market realities
78% of survey respondents believe outperformance will be more difficult to achieve
While investors’ appetite for property is as strong as ever, uncertainty clouds the outlook for Europe in 2017. Global investors are playing it safe by focusing on gateway cities and return expectations are being scaled down.
44% of respondents are considering alternative real estate sectors in 2017
'Alternatives' dominate as the real estate sectors with the best prospects heading into 2017. Survey respondents realise that this route is advantageous as alternatives, by and large, reflect how society is changing.
“Even if a country has a shrinking population, the cities are the areas that are growing and thriving” Head of Research, European Real Estate Investor / Developer
Despite the many political and economic uncertainties that are clouding Europe’s future, the real estate industry is upbeat about most of its major markets. Factors such as physical and social infrastructure, quality of life, diversity, forward-thinking municipal authorities, and sustainability are now firmly part of the equation.
92% of survey respondents say UK investment will fall in 2017 (over half think the fall will be substantial) whilst 48% believe there will be in increase in investment into the rest of the EU.
Many respondents think that Brexit re-shaping the European real estate map. UK property will switch from being an outperformer to an underperformer following the EU referendum, as London falls from 11 position to 27 in the investment rankings (and Birmingham falls from 6 position to 22). The Nordics are on the rise with good demographics, growing economies and high quality of life making them a destination for global capital.
55% of survey respondents agree that how a building is used is more important than the asset itself
From technology to social and demographic change, the forces reshaping real estate are growing stronger and more interconnected. Successful cities, districts and buildings embody the 'sharing economy', allowing the largest number of people to collaborate effectively and share resources, including infrastructure, technology, cultural facilities and ideas.
The business outlook for Europe in 2017
Emerging Trends Europe respondents are divided between those who believe prime real estate is fairly priced, and others who fear it is overvalued. But regardless, equity continues to flow into Europe from all corners of the globe and from all types of investors. “Lower” could be the mantra for this year’s report however: lower economic growth; lower rental growth; and lower return targets. More than two thirds believe that outperformance will be more difficult to achieve with many expecting more volatile cycles. However, most are hopeful of achieving the same as they cited last year; 45 percent are still aiming for between 5 and 10 percent, and another 24 percent are also still looking for between 10 and 15 percent.
"The clear consensus among global investors is to find safe, reliable return and not place capital at risk.
Germany and the Nordics come out on top
Emerging Trends Europe 2017 ranked the real estate markets in major European cities according to their overall investment and development prospects. Despite the many political and economic uncertainties clouding Europe’s future, the real estate industry is upbeat about most of its major markets. But Brexit is re-shaping the European real estate map.
Berlin, Hamburg and Frankfurt occupy the top three places in the league table, while Munich retains its appeal at Number 5. One pan-European investor stated that “Germany replaces the UK as Europe's number 1 safe haven,” for 2017.
The Nordics are also a new safe haven, with good demographics, growing economies and a high quality of life making the Nordics a destination for global capital.
The sharing economy - a focus on access over ownership
It is easy to see why a move away from ownership would have the potential to disrupt severely an industry built on the very concept of ownership.Indeed, the growing relevance of the sharing economy is shifting the centre of gravity for real estate - from financial asset, to product, to “space” as a service. More attention is focused on the quality of that service, while creating new markets and new types of consumer.
“The real estate industry will engage in socio-demographic changes much more - healthcare, leisure, housing as opposed to retail, offices, industrial.”
Technology as an enabler for change
Technology as both an enabler and a catalyst for cultural and social change is a key underlying trend that many argue will have the most significant impact on the real estate sector in years to come. It is influencing the way we occupy, lease, buy, sell and value real estate and respondents believe this will enable much better transparency over performance and better access for users.
“The insights we get as owner, as user, as tenant from big data represent one of the most important long-term trends. The availability of data will add a lot of transparency to any market and will be very important for making investment decisions. It will also affect pricing.”
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