CBRE suggested today there may be a slight change in attitude toward buying secondary as well as opportunistic/value-add assets in Europe among real estate buyers and institutional investors.
Preempting research due to be fully released next week at the MIPIM property show in Cannes, France, CBRE said it had collected responses from 362 predominantly European-based fund or asset managers, pension funds, insurance companies, private property companies, listed property companies and private equity/venture capital companies to discover their investment intentions.
Its online survey found that in keeping with the recent trend, prime/core properties were selected by a majority (53 percent) of respondents as the most attractive assets – a higher proportion than in 2012. However, there were larger increases in the proportion of investors indicating that ‘good secondary’ and ‘opportunistic/value-add’ assets were most attractive, in both cases rising to over 40 percent. The proportion favoring distressed assets was virtually unchanged at 22 percent.
The company has taken that to indicate there is a softening in attitude towards risk as well as evidence of improving sentiment – both in terms of expectations around investment activity levels and the range of assets that investors will consider.
A clear majority (58 percent) of respondents said they expected their purchases in 2013 to be higher than in 2012. This compared with 45 percent giving the same answer last year. The proportion of real estate buyers intending to spend less this year than in 2012 dropped to just 6 percent compared to 18 percent in 2012.
Respondents were also asked to rate their preferences across four types of assets of different quality and risk characteristics, indicating which they considered ‘most attractive’ for purchase.
“The results indicate that, while there is still a bias towards prime/core assets, there is now significantly greater interest in opportunities further up the risk spectrum,” said CBRE. “This could reflect investors’ need and willingness to consider a broader range of assets as prime/core markets have become crowded and, in some cases, more expensive. It could also reflect an increase in risk tolerance with more positive investor sentiment generally in response to reduced uncertainties over the eurozone.”
The conclusion that there is now growing investor interest outside prime/core assets was supported by the pattern of responses on the ‘single most preferred’ type of asset for purchases in 2013. Prime/core assets got the highest vote (42 percent), but a majority of respondents overall chose other asset types. Good secondary and opportunistic/value-add assets were each selected by 25 percent of investors as their most preferred asset type for purchase.
Peter Damesick, chairman, EMEA research, said: “The findings of this year’s survey reflect a more positive tone in investor sentiment. The responses clearly imply that investors are looking to commit more capital to European real estate in 2013 and there is potential for increased transaction volumes in the coming year. The implication is also that the trend towards greater investor interest and activity in secondary assets, evident since the final quarter of 2012 in some European markets, will gather pace during 2013. The next 12 months could mark the beginning of a reversal of the strong polarisation that has characterised European property investment markets over the past two years.”
However, he also added a cautionary note. Commenting on the potential implications of the recent Italian election for the market, Damesick said: “Evidence of improved investor sentiment in the survey preceded the inconclusive Italian election result, which has now brought new uncertainties to the eurozone. However, the exact degree to which this will affect the positive mood of investors remains to be seen.”