Catella: Tomorrow’s five highest yielding European cities

Using new risk-based analysis, the Stockholm-based real estate advisor and investment manager has named the five best and worst performing European cities in terms of projected average commercial property yields between 2016 and 2020. 

Catella, the Munich-based real estate advisory and investment management firm, has named Marseille, Birmingham, Helsinki, Prague and Glasgow as the five cities it expects will offer investors the greatest yield over the coming five years.

The research was gleaned from the firm's newly-launched Catella Market Tracker which comprises a new valuation and risk model enabling the firm to predict which urban areas will be the most attractive to investors between now and 2020.

Top of the pile was Marseille with 5.3 percent, followed by Birmingham with 5.2 percent, Helsinki (5.2 percent), Prague (5.1 percent) and Glasgow (4.9 percent). Of the top five cities, Catella said it believed the Finnish capital of Helsinki stood out because it displayed the best yield to risk profile.

According to Catella’s research, Cologne, Munich and Hamburg will be the best performing German cities, generating average yields of 3.2 percent in the coming years.

In contrast, the tracker also predicted particularly low returns from commercial property for Warsaw (1.3 percent), Dublin (2 percent), Lisbon (2.3 percent), Milan (2.4 percent) and Barcelona (2.4 percent).

The tracker’s creator, Thomas Beyerle, head of group research at Catella, said he believes that real estate analysts should consider the impact of “fat tail” events or “black swans”, namely occurrences that are extremely unlikely to happen from a purely mathematical point of view.

Beyerle argued that current risk models do not factor in such events and asked whether the sector’s professionals should look for new ways to assess risks within the property business.

“When the market experiences a major upset, institutional investors often state that they ‘obviously miscalculated’ the frequency and severity of an extreme risk event when performing their asset allocation activities,” said Beyerle. In other words, said Beyerle, if something is unimaginable it is simply not considered in the risk assessment.

“Our conclusion is that the real estate sector’s professionals should look for new ways to assess risks. In this current positive market environment investors should be more focused on the so-called fat tail events, for example, the very unlikely events, in their risk management,” Dr Beyerle.

Last month, Catella announced it had raised €155 million for its first Dutch-focused investment vehicle, passing its original fundraising target by €5 million. The core-plus, open-ended fund, Panta Rhei Dutch Residential, was launched in early 2015 and Catella said it was targeting residential properties in Dutch provinces such as Groningen, Randstad, North Brabant and Arnhem/Nijmegen.