Geo-political change, challenging investment market cycles and the sheer weight of capital is re-writing the rules of attractiveness and investment in European countries, according to a new report from global real estate specialists Colliers International.
By assessing the core fundamentals of European commercial property markets and categorising how different countries are positioned relative to an investors strategy, attitude to risk and their desire for stability, growth or yield, Colliers has identified the Nordics, Netherlands and Tier 1 markets, alongside risk-adjusted opportunities in core and select CEE countries as the most favourable places in which to invest in commercial real estate in 2017.
Most of the European commercial real estate markets are witnessing late-cycle activity, yet global funds under management continue expanding their allocation to real estate, up to an estimated US$4.9 trillion to date in 2016*. Against this backdrop, Colliers has asserted that the H1 2016 ‘cause for pause’ is not a position that investors can prolong amidst increasing competition for product.
Richard Divall, Head of EMEA Cross Border Capital Markets at Colliers International said: “Investors can’t sit on their hands for too long. Finding well-priced product may have become increasingly difficult towards the end of the current cycle, but the money being funnelled into property continues to grow as commercial real estate investment remains a very attractive option in a macro environment of ‘lower for longer’. As we head towards 2017, all markets continue to offer possibilities depending how far up the geo-political risk curve you want to go.”
In Colliers’ ‘European Investment Market Outlook: A Matter of Perspective’, three broad investor personalities emerge: Risk Averse, Stability & Growth-led, and Yield Hungry and their recommended country for investment is revealed in a ranking.
“The highest ranking ‘Risk Averse’ and ‘Stability and Growth-led’ markets are the ones likely to be most active, as they appeal to core and core plus investors, who dominate the investor landscape.
At present, the combination of political stability, operational transparency and solid yields available in the Nordics and Netherlands has put them at the top of the investment volume growth curve heading into 2017. The deeper Tier 1 markets of Germany, the UK and France remain closely in step,” said Damian Harrington, Head of EMEA Research at Colliers International.
“Product availability has diminished as investors hold on to key assets to drive their portfolio returns, plus there are fewer investors out there in a forced position to sell. Hence active buyers are seeking out alternative indirect opportunities via corporate, or M&A-type deals to satisfy their requirements. This adds to the attractiveness of the Nordics, Netherlands and Tier 1 markets as they provide greater diversity of opportunity,” adds Divall.
Divall concludes: “The next three months is set to be a landmark time for Europe and with the markets anticipating the unexpected, perspectives for early 2017 could well change again. Equally, parts of Europe still have to manage out a significant legacy of bad debt, with a number of banks at risk of failing, including Deutsche Bank and Monte dei Paschi si Siena. The impact of these banks failing, or requiring a bail-in or out, could significantly adjust the outlook for markets, particularly for Italy.”
You can download the European Investment Market Outlook report here