European real estate, a safe haven for some time yet

Berlin is at the top of the10 favoured cities for investment in 2016. London and Paris are outside, while Zurich is in 24th position from the Number 25 of the last year. All details in the PwC and Uli’s research

Berlin at number 1, followed by Hamburg, Dublin, Madrid and Copenhagen. These are the five leading cities for investment prospects in 2016, according to “Emerging Trends in Real Estate Europe 2016: Beyond the Capital”, a forecast published jointly by the Urban Land Institute (ULI) and PwC.In particular, many interviewees back the German capital to thrive well beyond 2016, based on its young population and its growing reputation as a technology centre, as well as the land available for development.

“Low interest rates, and the weight of capital bearing down on European real estate, mean that most remain bullish about the industry’s business prospects in 2016” said Elisabetta Caldirola, PwC partner and Italy Asset Management & Real Estate Leader – But they acknowledge that the global field for real estate is increasingly competitive, and if the current wall of capital recedes, there will be an even stronger focus on underlying market fundamentals, active asset management and operational skills”.

There is a new trend. According to the research, investors are demonstrating more interest in alternative, operational sectors that have benefited from rapid urbanisation and demographic shifts, such as healthcare, hotels, student accommodation and data centres. 41% of survey respondents would consider investing in alternative sectors, compared to just 28% in last year’s survey. “Investors are getting more creative in trying to access future prime assets at reasonable prices through more focus on alternatives and development,” confirm ULI Europe CEO Lisette van Doorn.

Moreover, the high street retail and logistics sectors, which have benefited from technological advances and improving economic conditions, are also predicted to fare well in 2016.
Development is also expected to create value in 2016, with 78% of respondents citing development as an attractive way to acquire prime assets.

European real estate will remain a safe haven for some time yet.
Back to the cities, maintaining last year’s number one position, Berlin tops the table for both investment and development prospects in 2016. Hamburg has taken the second spot from Dublin, slipped to third place (the consensus among interviewees is that the Irish capital has already reached its peak for opportunistic returns). The other cities are: Madrid (4), Copenhagen (5), Birmingham (6), Lisbon (7), Milan (8), Amsterdam (9) and Munich (10).
“The strong ranking of Birmingham, Britain’s second city, reflects the positive view expressed during the interviews on property investment in UK regional cities, including Manchester – there is written in the research – Birmingham, which is set to benefit from substantial infrastructure investment, in particular the HS2 high-speed rail line to London scheduled to open in 2026, reflects a trend seen in a number of European regional centres by offering good value for investors”.
What is notable is that both of Europe’s preeminent real estate markets, London and Paris, are languishing outside the top 10 favoured cities for investment in 2016. In particular, London’s sparkle has faded, and it has fallen five places to Number 15 for investment, while Paris remains lowly ranked at Number 22. Paradoxically it is considered both too expensive and with poor fundamentals: “Continued pressure on rents, economy poor, demand weak”, said the respondents. However, none of this, it must be said, appears to deter investors from pouring money into London or Paris. These two gateways have seen €57 billion of deals in the year to Q3 2015.
About Italy, this country is one to watch. Milan, with its more dynamic and prosperous economic base, is the favoured city at Number 8. Rome is still judged to bea poor prospect for investment, but has an improved outlook for development.
As regards Switzerland, now, Zurich is in 24th position from the Number 25 of the last year. Zurich’s prospects were not helped by the “Swiss franc shock” in early 2015, when the Swiss national bank’s decision to un-peg the Swiss franc from the euro floor caused a surge in the value of the local currency.
In the end, political uncertainty is an issue that is weighing heavily on investors’ minds. They cite it as a reason for avoiding Russia, Turkey, Greece and Scotland.