Catella, the Stockholm-based financial advisory and asset management firm, has identified €515 billion of capital that is targeting European real estate.
In an announcement today, the firm said the total was more than double the €250 billion total identified in 2007, the year before the global financial crisis started.
The firm predicted that a sheer weight of demand for European real estate would see capital “spill over” from what it described as the region’s most popular markets, London and Paris. The main beneficiaries would be Germany, the Nordics and Spain.
“We see this large volume of capital changing the investment markets in Europe in the medium term.” says Thomas Beyerle, group head of research at Catella. “As capital spills over from traditional Europe investment centres London and Paris in the next 12 months, we expect to see increasing investment activity in Germany, the Nordics and Spain.”
The firm said this influx of capital would see domestic investors increasingly compete with overseas investors.
Catella also said the reasons for such a volume of capital targeting real estate were multiple. They included: poor performance of bonds and other fixed-income products; a growing need for stabilized investments over the long term; over-allocation from Asian fund managers in Europe; particularly strong levels of Chinese investment capital in the region; renewed high levels of interest from Middle Eastern capital too and; marginally higher increased interest from US and Canadian investors as well as private equity funds.
Those catalysts have come against a backdrop of the high liquidity that has been provided by the Federal Reserve and the European Central Bank.
However, Beyerle said that Catella expected only about half of the €515 billion it identified will actually be deployed into the market. He said: “While the figures seem dramatic and impressive, we expect about half of the capital to actually find its way into the markets in the end.”
“The reasons are shortage of core segment properties, mismatched price expectations and complex regulations that hamper new funds’ investment ability.”
As a result, Beyerle said the firm’s forecast for 2014 was “positive but cautious”. He also pointed out that even if just half that total was deployed this year, then that would still amount to an increase of 53 percent when compared to the total amount of capital it recorded as being invested in 2013.