With offshore investors finding European core funds attractive and opportunistic funds appealing, the latest European investment report from London-based real estate services firm Savills posed the question: which investors will fill the middle ground?
Tristam Larder, director of Savills’ cross-border investment team, said: “Opportunity funds need active asset management angles. Core funds, on the other hand, are looking for prime assets or good quality assets with long leases in B+ locations.”
Larder added: “There is a middle ground of assets with no immediate asset management angle that is languishing between the two types of buyer. Four out of five of these assets currently are purchased by local buyers but, with funding issues, those priced over €40 million sit in a trouble zone.”
Savills suggested that, aside from core areas of UK, France and Germany that will continue to be the main focus for 2012, Central and Eastern European (CEE) and peripheral countries are attracting interest as investors see longer-term opportunities. The firm’s report also stated that acquisitions by Asian investors are slowly increasing and those by Middle Eastern investors decreasing: more than €4 billion was invested by these groups in 2011, of which 81 percent was in the UK. However, German and CEE markets are expected to be the focus for these parties in 2012.
“Rising capital flows and interest from risk-embracing investors, combined with distressed opportunities offered by peripheral countries and banks, may well be the start of a market turnaround,” said Lydia Brissy, director of Savills European research.
Savills has also suggested that 2012 is set to see a 4 percent increase in real estate investment volumes across Europe following a total of €101 billion invested in 2011, of which 80 percent was transacted in the UK, France and Germany. The research noted that defensive strategies have steered investors towards retail assets, notably shopping centres, but the bulk of demand continues to target offices, representing 47 percent of total commercial turnover in Europe during 2011.
Savills noted that average prime office central business district yields have moved down by six basis points over the past year to 5.76 percent, in line with long-term averages of 5.78 percent, while average prime European shopping centre yields declined by 19 basis points over the past 12 months to 6.6 percent. In contrast, the gap between industrial properties and that of retail and office assets has widened, with yields rising from 7.52 percent to 7.63 percent.
“The growing appetite for risk in 2012 will be demonstrated by the increasing number of forward funding deals, fuelled by the rising number of distressed sales and bank disposals,” added Brissy. “We anticipate this could revive the industrial market, which has become increasingly attractive, and see peripheral countries where yields continue to rise, such as Ireland and Spain, back in the spotlight.”