Europe will remain at the center of investor attention for another two years, said Cushman & Wakefield (C&W) in a report published today called ‘Capital Views: The Allure of Europe’.
The broker made the claim based partially on there continuing to be ‘stock’ becoming available for sale as well as the significant boost due to quantitative easing in the region.
Predicting how much longer Europe might remain the darling of world real estate markets, it said: “Indeed, with the economy improving and the occupier cycle marginally closing the gap with the capital cycle, the market could have a two-year window of high activity and attractive relative pricing.”
In terms of opportunity, C&W said that depended as ever on risk tolerance. But it saw three clear tiers of potential where liquidity, improving occupier and/or attractive pricing pointed to better than average gains. In the first tier, the core markets of London, Paris and Germany continued to lead the way, it said, followed by a focus on the leading cities of smaller countries, notably Madrid, Barcelona, Milan and Brussels. Next came Eastern European countries within the EU, but not stopping at only Poland and the Czech Republic.
Further explaining the attractiveness of real estate, C&W said on balance, the macro drivers for demand were “more positive” for real estate than for bonds and indeed the relative yield from property should continue to draw in both short and long-term investment interest.
“If anything, international demand is likely to rise further as institutional fund allocations have tended to rise among global players of late and regulations continue to change to allow or encourage property and international investment,” added the broker. “Even for those players where oil and commodity price falls may reduce their net cash position in the short term, many are still active buyers.”
A strategic shift is in fact taking place in favor of property and much of the current investment upturn is driven by long-term investors. At the same time, however, much is also accounted for by shorter-term portfolio flows seeking the best returns available globally today, the firm said.
This hotter money will just as easily flow away from Europe and from property when the time is judged right, argued C&W. That judgment on timing will, to a large degree, be driven by interest rates. However, with €60 billion of quantitative easing to allocate each month, bond yields overall are likely to rise only slowly and hence are unlikely to compete with property yields before 2016 or 2017 at the earliest.
“As a result, European property faces a further one to two year window of attractive relative pricing, particularly from assets enjoying the start of an occupational upturn, and with low relative risk and diversification gains on offer, high demand will be sustained.”
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