Slowdown in 'Wall of Money' targeting EMEA region
A number of enlightening surveys were unveiled at the recent MIPIM in Cannes, particularly in the aftermath of the Brexit vote in the UK in an attempt to divine investors' new intentions. They differ in important ways, but one thing they have in common is that Germany tends to look like a beneficiary as investors re-assess their European options.
The first study, "Emerging Trends in Real Estate – The Global Outlook for 2017", published by consultants PwC together with the Urban Land Institute ULI, confirms that capital flows will consistently strong in 2017, and also that – as we're reported anumber of times in REFIRE – that Germany pulled ahead of the UK in investment volume last year or the first time with a volume of €60.2bn, compared to the UK's €59.9bn.
A parallel study "EMEA Investor Intentions Survey 2017" from property advisors CBRE also shows investors favouring Germany as the top destination in Europe. Of CBRE's respondents, 22% (last year 17%) gave Germany the nod ahead of the UK at 20% (15.1%). These were followed at a distance by the Nordic countries (10%), with France (5%) and Italy (3%) in positions nine and ten respectively.
London remains the top single city destination (17%, up from 15.1%) despite Brexit, with Berlin showing the highest rise in investor favour, jumping 5 percentage points to 15.8%. Paris, at 5.4% (down 5.2%) is next, despite the political uncertainty in advance of the forthcoming elections.
Falling out of the top 10 in the CBRE study are Hamburg, Milan and Munich – largely due to the perceived shortage of top quality available assets – while Oslo and Stockholm benefit from what investors view as very attractive risk-adjusted returns, reflected in transaction volume in 2016 that was fully 66% above its 10-year average.
- London 17,0%
- Berlin 15,8%
- Madrid 8,4%
- Amsterdam 7,3%
- Paris 5,4%
- Warsaw 4,9%
- Oslo 4,7%
- Prague 3,0%
- Stockholm 2,9%
- Frankfurt 2,6%
The PwC study also highlights how the line between real estate and infrastructure investments is getting increasingly blurred as the market for core assets restricts further. According to PwC's Susanne Eickermann-Riepe, "Investors who can't or won't lower their yield expectations will simply have to broaden their search into alternative asset categories." PwC view the emergence of other asset categories at the interface between real estate, infrastructure, agro-economy and forestry as inevitable, all offering slightly different yield profiles to classical property investment.
Another report released at the MIPIM in Cannes was Cushman & Wakefield's "Great Wall of Money" study, which tracks the amount of newly-raised capital targeting real estate at a global level.
For the first time, say C&W, the amount of capital targeting commercial real estate in the EMEA region has shrunk 9% in US dollar terms to $30bn (€122bn). The Americas grew 2% to $173bn and Asia posted a marginal increase to $132bn.
The fall in available equity across EMEA is said by the C&W researchers to be largely a reflection of a strong dollar. With close to 80% of funds targeting Europe reporting in either euros or pounds, currency is a key component.
The total global wall of money, which stands at $435bn, experienced its the first drop since 2011 – a small decline on last year’s peak of $443bn. But C&W said it was still the second-highest since 2009.
Elisabeth Troni, head of EMEA research and insight at Cushman & Wakefield, said: “With the great wall of money targeting real estate at near record levels, investors need to remain focused but agile. While core real estate strategies remain highly attractive, she said, “demand tends to outstrip supply in many key markets, pushing down yields and challenging investors”.
She said: “Unable to find enough existing core assets, investors are engaging in build-to-core strategies targeting development or redevelopment projects that create core assets in top markets.”