Two surveys, each dealing with different aspects of real estate investment in Europe, have reinforced the view that, despite a growing feeling that markets are reaching peak levels, there is unlikely to be any change soon in the high volumes of transaction activity witnessed in recent years. The reasons for the activity still stand and investors remain persuaded that European real estate will continue to give them the yields and returns that they are looking for in this low interest-rate, low-return investment environment.
The 2016 Capital Raising Survey from INREV, ANREV and NCREIF found that a record €123.6 billion of new equity was raised for non-listed real estate last year, with the €57.3 billion (46.4 percent) raised by pension funds representing “a resounding vote of confidence” in non-listed real estate, according to the survey authors. Insurance companies contributed 14.6 percent of the new capital, sovereign wealth funds 10.8 percent and high-net-worth individuals 2.6 percent.
The principal destination of the new equity was Europe, which accounted for €63.1 billion or 51.1 percent of the capital raised. North America took €34.5 billion (27.9 percent) and Asia Pacific €16.9 billion (13.6 percent). Of the 321 vehicles for which North American fund managers raised new capital, almost half (48.3 percent) had a European strategy, demonstrating the region’s continued popularity on the other side of the Atlantic.
This year’s survey for the first time gave “global strategy” as one of the options that respondents could select in terms of where they might focus new equity. The €8.5 billion (6.9 percent) raised for this category was said to point to the ever-increasing globalisation of real estate as an asset class.
Non-listed real estate funds were the most popular vehicle for capital, representing almost half of the total equity raised (47.3 percent), followed by direct investment through separate accounts (24.4 percent) and joint ventures (13.3 percent). Debt drew 9 percent of total new capital; most of this — 72.1 percent — was raised from European investors. European debt products attracted €3.6 billion of equity “thanks to the considerable amount of choice in this part of the market” — which could be another way of alluding to a proliferation of funds in the sector.
“The volume and variety of vehicles that received fresh equity last year is testament to the breadth of opportunity in the non-listed real estate market,” says Henri Vuong, INREV’s director of research and market information. “But the continuing increase in the volume of capital being raised also brings with it challenges relating to deployment, which is likely to become tougher. Investors and fund managers may need to shift their preferences for risk, style and region to find the investments that can deliver attractive returns.”
The 2016 EMEA Investor Intentions Survey from CBRE also confirmed a continuing high level of investor interest in European real estate. The survey found that almost half (48 percent) of the 423 EMEA real estate investors surveyed expected their purchasing activity this year to be higher than last year, compared with just 15 percent who expected to be less active buyers. Helpfully, 43 percent also expected their selling activity to increase, indicating a buoyant and liquid real estate investment market for the region in 2016.
CBRE has, however, noticed a change in investor risk appetite; “after three years of diminishing popularity, prime or core assets are back on the agenda.” The proportion of investors who see prime or core assets as the most attractive part of the market rose from 29 percent last year to 41 percent this year. Investors’ concerns over economic issues were given as an explanation.
Germany was the leading preferred destination, attracting 17 percent of responses, followed by the United Kingdom (15.1 percent), Spain (10.2 percent), the Netherlands (9.9 percent), France (9.2 percent) and Poland (9.2 percent). Central and eastern Europe saw a big shift in investor interest, rising from 6 percent in 2015 to 23 percent this year; this is attributed to the continued “search for yield”.
London was the preferred European city, with 15.1 percent of all investors favouring the city. Madrid was second with 12.2 percent, followed by Paris (11.6 percent), Berlin (10.8 percent), Amsterdam (7.3 percent), Warsaw (7.0 percent), Milan (4.7 percent), Budapest (2.9 percent), Prague (2.7 percent) and Munich (2.4 percent).
Jonathan Hull, managing director of Investment Properties, EMEA, at CBRE, comments: “Almost 85 percent of respondents expect their purchasing activity in 2016 to remain higher or the same as last year. This result, taken alongside similar figures for investors’ selling intentions, indicates that we are set for another year of strong investment activity. Overall, however, there was much less agreement among respondents on what constitutes the most attractive market and preferred investment strategy. As differences in opinion are what make a market, this would suggest that 2016 will be an interesting time in real estate across the EMEA region.”