03 August 2017
Reporter: Theo Andrew

European real estate investors predict “same risk, lower returns” until 2019

A majority of real estate investors in Europe do not expect to see a rise in returns until 2019, with many adopting a ‘same risk, lower returns’ approach, according to Union Investment survey.

The survey, which spoke to 168 professional property investors across the UK, Germany and France, found that 75 percent of respondents did not expect a turnaround for two years, while 43 percent expected the wait to be longer.

Political sentiment featured highly on investor outlook, with contrasting pictures in France and the UK, while the German market was viewed as “highly stable with a slight upward trend”.

Of the French investors surveyed, 61 percent felt that the French real estate market would perform better since the election of Emmanuel Macron into the Élysée Palace.

In the UK, despite a stable economic outlook predicted for the next 12 months, the investor climate index reached an all time low of 42.5 points due to its decision to leave the EU.

Olaf Janßen, head of real estate research at Union Investment Real Estate, said: “The example of the UK clearly shows that political uncertainty around Brexit continues to outweigh the core data on the general economic situation.”

“At the same time, some European investors have already returned to the UK markets and are finding suitable conditions for new investments if they are willing to accept more risk,” he added.

The survey found that 71 percent of UK investors and 74 percent of German investors are using a ‘same risk, lower returns’ strategy, touting security of their investment as their main concern.

Tolerance to risk in France is somewhat higher, with 41 percent stating they would take on more risk in order to achieve the same yields.

There also appeared to be a shift towards alternative assets as scepticism surrounding office and retail assets continues, with logistics (83 percent), hotels (61 percent) and residential (61 percent) the main target for investors.

Student and social housing also featured highly as investors turn their attention towards micro housing.

Janßen said: “In recent months, high prices for office and retail real estate in the core markets have sparked the creativity of professional investors and caused them to take a broader view of the property market. This development is already being reflected in new fund ideas.”

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