Savills IM: European core a ‘safe haven’

Volatility, currency pressures, and geopolitical tensions elsewhere are pushing investors into European core real estate, according to the London-based firm.

European real estate markets are set to continue to benefit from their “safe haven” status, said a report from Savills Investment Management, the London-based real estate investment arm of property services firm Savills.

According to Savills IM’s Outlook for 2016 report, emerging markets slowdown, global monetary policy divergence and increasing political tension in the Middle East are the factors driving capital into European core real estate.

“Concerns about a hard landing in China and the pressure on emerging market currencies, coupled with geopolitical tensions in the Middle East, are resulting in net capital outflows from these regions into liquid European property markets, which are seen as safe havens,” said Kiran Patel, chief investment officer at Savills IM.

The report added that economic growth is expected to accelerate modestly in a number of European countries, and so real estate stands to benefit from improving occupier markets, limited quality supply and historically low government bond yields.

“There is a great deal of global capital chasing a limited amount of core stock. With real estate yields comparing favorably to government bonds and equity markets experiencing turmoil, the implications for property asset prices are positive in the short term,” said Patel.

However, in order to get the best risk-adjusted returns, investors may have to move up the risk curve.

“Strong headwinds mean that we are continuing to see strong demand for core investment product. Given low prime property yields and the shortage of prime investment product, we expect investors to increasingly target secondary property in the best markets,” Patel added.