PWC: Confidence levels lower beyond 2016

Delegates at a seminar co-hosted today by professional services firm PWC and property association Urban Land Institute heard how geopolitical issues had led to a ‘strong undercurrent of caution’ among real estate executives when forecasting the prospects for Europe’s property markets beyond this year.

Low interest rates and the sheer volume of institutional capital seeking a home in the region’s property markets is maintaining a positive outlook among real estate professionals for European property in 2016. But geopolitical issues were making it hard to forecast beyond the year, delegates at a seminar hosted by professional services firm PWC and property association Urban Land Institute heard today.

Revealing the findings of their latest research, Gareth Lewis, a director in the real estate team at PWC said during the seminar’s opening address that bullish sentiment remained among the 550 sector professionals polled for their annual Emerging Trends in Real Estate research this year.

Accordingly, 55 percent of participants expected an increase in available equity for assets in the region, marginally down on 2015, but nonetheless maintaining a positive overall trajectory. “We expect pensions, sovereign wealth funds and private equity to still find the difference between bond yields and prime property yields compelling,” he said.

However, a strong undercurrent of cautions, particularly geopolitical, such as Britain’s potential exit from the European Union, economic decline in China and uncertainty over Europe’s economic recovery, have led to nervousness about how the markets will perform beyond this year.

Meanwhile, as the market in general continues to enjoy favorable tailwinds, participants have become increasingly keen to focus on less traditionally fancied cities such as Berlin, Hamburg, Dublin, Madrid and Copenhagen as prime markets like London become over competitive and overpriced.

Lewis said focus would increasingly shift to those markets able to demonstrate a young demographic or tech occupier. A similar trend is occurring in the US, he said, where cities such as Nashville, Portland and Charlotte, those known colloquially as “18 hour cities”, were attracting investors.

In related findings, the partners’ report said 63 percent of respondents said prime property assets were overpriced, 78 percent felt development was an attractive route to prime assets, while 41 percent were interested in alternative real estate asset classes like healthcare facilities, student accommodation, shared serviced offices and hotels.

A panel session later in the seminar reflected on how certain geopolitical concerns expressed could actually bring opportunities. Jim McCafrey, senior managing director at investment bank Eastdil Secured, said, for example, the recent upheaval in China’s stock market should precipitate more Asian capital coming into US and European markets in search of safer havens although he admitted government intervention was always a threat to that.

On the finance side, he expected European banks and global insurance companies to “pile into the space” offering further capital support to an already highly liquid marketplace. His comments chimed with the PWC/ULI report in which about half those surveyed felt debt capital would increase in 2016.