Union Investment survey highlights growing investor risk appetite
The semi-annual survey carried out by leading German fund manager Union Investment shows a clear shift in the willingness of investors in Germany, France and the UK to take more investment risk, and move up the risk curve from their recent fixation with Core to Core-Plus.
The survey results point to a clear sign of recovery in investor confidence, including a marked willingness to invest outside classical metropolitan areas, engage more closely with previously-shunned southern European markets, and are prepared to consider much larger-sized deals than before.
The latest Investment Climate barometer readings from Union Investment are based on the responses from 167 European institutional investors, in a survey carried out by market research group Ipsos during June and July this summer. The survey methodology uses four different sub-indicators – market structure, overall economic outlook, locally-relevant conditions, and expectations – each with a weighting of 25%, to arrive at an index score.
More investors are starting to implement a core plus strategy in response to high prices for prime property and an improved market outlook. They are willing to accept shorter leases, invest in development projects and make greater compromises on pre-letting prior to purchase.
Half of the firms plan to increase the share of secondary cities in their portfolio over the next 12 months, seeing conditions particularly favourable in home markets. Apart from Germany, UK and France, the most popular markets for B-strategies are Sweden, Spain and The Netherlands. After years of being focused almost purely on security, 60% of the investors surveyed (particulary among French respondents) said the return on investment is back as key motivation in their strategies.
High demand for scarce assets is leading managers to develop new sales strategies as well. Some 68% said they aim to exploit market opportunities to streamline portfolios, dispose of mega-properties or take profits. “While re-calibrating their overall risk profiles, opportunities for selling in markets experiencing high demand are being seized upon much more actively than in recent years,” said Union Investment board member Frank Billand. “Substantial portfolio deals are also set to become a more prominent feature of the market again.” Some 41% are preparing sales; 40% want to invest more into existing holdings, the survey showed.
While sustained interest rate rises are not on the horizon yet, investors are aware of the risk and 56% give this a higher priority than in prior years. Measures include stress tests to analyse the impact of rate hikes, and more than half are stepping up activities to secure rental income. The optimistic investment mood lifted performance expectations, with 65% rating their financial situation better than last year and most expecting a rise in business performance over the next 12 months. Differences between the three nations polled have all but disappeared, with a marked improvement in sentiment in France, where the index was up 3.4% to 69.3 points, the most optimistic reading for several years. The German index gained 0.2pt to 69.9, while that for the UK fell by 14 points to 70.9 on the scale.