Whether it’s new technologies changing how we work, economic policy decisions changing the investment landscape or fresh ways of looking at old business models, Europe’s real estate isn’t short of disruptive forces right now.
And that’s before we even start on the political uncertainty currently gripping Europe’s decision makers.
At Expo Real, Europe’s annual international trade fair for property investment held in Munich, all these different strands of change were up for debate as real estate professionals dissected emerging investment opportunities, discussed the economic and political outlook and considered how to stay ahead of the curve.
“We’re seeing more money than ever chase real estate and, because of currency hedging, there’s more and more interest in the European market than perhaps we’ve ever seen,” says Matt Richards, JLL Head of EMEA Capital Markets. “The challenge is that there are not enough sellers to pair with the amount of buyers.”
In the UK, both European institutional and Asian investors are still attracted to real estate, despite political uncertainty, says John Woodger, JLL central London investment director.
Here are four of the biggest talking points that stood out from the crowd:
When will the current real estate cycle come to an end?
The length of this current, extended real estate cycle is a talking point for those who have been in the sector for long enough to recall the day that Lehman Brothers crumbled a decade ago. While history doesn’t always repeat itself, it can provide some useful lessons – and inform present and future decisions. In Germany, there is “no clear tendency among real estate investors to release stock into the market”, according to Timo Tschammler, CEO of JLL Germany.
“Real estate markets have continued to perform well and we believe this will continue well into 2019,” he says.
How long Europe’s run of strong occupational markets and high investor demand continues is the big question, says Mike Atwell, JLL Head of Capital Markets Czech Republic and Lead Director for CEE.
“The reality is that for now there’s nothing on the horizon which will change our positive view of the market.”
Can global interest rate rises work in Europe’s favour?
Interest rate rises in the eurozone are further away from the UK and U.S and the gap is widening between zero-rate Europe and the US, presenting a potential opportunity for investors seeking leverage. While the European Central Bank recently ruled out any rises until mid-2019, eurozone rates will eventually follow the path set out in the U.S. and U.K.
“It would be hard to predict the peak of European interest rates in this cycle but we will certainly not arrive at the level we did in the previous cycle,” says Marcus Lütgering. Head of Office Investment Germany. “Higher interest rates come when the economy is growing.
“Yet the steps taken by the US Fed in recent months are having a positive impact on real estate investment in Germany.”
Where are the opportunities in flexible space?
Flexible space is transforming the office market. Some companies and landlords have been quick to respond, creating high-quality, amenity-rich workspaces that promote a sense of community and encourage collaboration. Other companies are sitting on the sidelines to see if it’s truly a disruptive force or more of a shorter-term distraction.
In the meantime, flexible space is growing fast in Europe as workforces become more agile, technology advances and companies rethink how they use space. It all has big implications for companies leasing space, developers building space, landlords designing space and investors choosing the right space.
“There’s increased competition between a diverse mix of new co-working and existing players,” says Tom Carroll, Head of EMEA Corporate Research JLL. “We’re seeing a widening range of models – they differ by location and by occupier requirements.
“Some corporate portfolios just won’t be right for flexible space but at the same time there’s real appetite to experiment.”
Is Germany’s residential sector a good emerging investment?
As the pace of change across real estate accelerates, the steady income associated with rented residential property is appearing increasingly attractive. Unlike previous years, Expo Real featured more discussion around the residential sector, with host country Germany in the spotlight and regional heads of state out in full force. The sector, says Konstantin Kortmann, JLL Head of Residential Investment Germany, is becoming increasingly professional yet how investors enter the sector varies, with joint ventures already a popular route.
With strong demand for investment opportunities across all sectors of German real estate, appetite among institutional investors for German residential is rising, says Kortmann. “It’s a growing sector and we expect demand to be high for the foreseeable future.”