New institutional market entrants underpinned investor demand for stabilized real estate assets in Europe during 2015, said Jason Oram, partner at London-based private equity real estate firm, Europa Capital.
Global investors increased their allocations to real estate, particularly in Europe, due to macroeconomic factors which have improved occupier confidence. Commercial property investment volumes in the region have risen 23 percent to $274 billion over the past 12 months, according to a September report from global real estate service provider DTZ.
“Real estate yield spreads against government bonds remain elevated, if not close to historic highs, and compare favorably with other regions of the globe,” said Oram.
The falling Euro compared to a relatively strong dollar is making real estate investments cheap. “The Euro represents good value following significant a significant falls in the past year and currently trades at a low not seen for over 10 years,” added Oram.
Another macro factor that makes European real estate look good in the eyes of global investors is the rhetoric surrounding interest rates. Earlier this year the European Central Bank (ECB) president Mario Draghi suggested that low interest rates in Europe will likely persist as the ECB continues its bond-buying program for another year or more.
However, there continue to be reasons to be prudent in taking investment decisions, such as economic uncertainty in China, expected changes in US monetary policy, the possibility of a Brexit, and the risk of over-exuberance in European real estate markets, according to Oram.