Joint SPR/IPF European Outlook Seminar, Tuesday, 3rd September 2019
Aviva Investors, Saint Helen's, 1 Undershaft, London, EC3
European property gets interesting – for researchers at least
For the first time in many years real estate prices are falling in a number of major European cities, though they continue to rise in most places. With markets now starting to diverge, real estate investors need to be even more discerning, suggested Simon Mallinson, Executive Managing Director, EMEA and APAC, Real Capital Analytics, which makes them more interested in what organisations like his have to tell them. Giving the real estate presentation at this well attended breakfast meeting, he explained that global capital is still flowing into Europe, but now less rapidly than in the previous two years, mainly due to declining investment in the UK market. ‘Beds’ sectors – including hotels, residential and student accommodation – have held up relatively well, while retail has seen the steepest decline, with investment inflows halving over the last five years.
Geoffrey Yu, Executive Director and CIO/Head of UK Investment Office, UBS Wealth Management gave a multi-asset perspective on a world where economic growth is still holding up reasonably well and promises to rise again slightly in 2020. With the price of gold currently strengthening, he believes this signals that real interest rates ‘will be crushed’ in the not too distant future, meaning that this is also the right time to invest in real assets. Meanwhile, declining earnings growth implies that equities are not a good bet, particularly in the Eurozone.
The panel discussion that followed was moderated by SPR chairman Oliver Kummerfeldt, European Real Estate Analyst, Schroders, and focused on the prospects for different sectors across Europe. Simon Durkin, Head of Research, BlackRock Real Assets emphasised that retail assets shouldn’t all be tarred with the same brush – there could still be opportunities in healthier locations, especially where rents had been rebased. Tony Smedley, Managing Director, Head of Private Equity - Europe, Heitman, stressed that investors should be aware that real estate is becoming more of a service-based asset class across the board and that its commercial, residential and educational functions are blurring.
A service culture is also becoming increasingly important in the office sector where the co-working model is here to stay, according to Damian Harrington, EMEA Head of Research, Colliers International. Tony Smedley did however suggest that the potential mismatch between short-term earnings and long-term liabilities could be a concern for the segment if demand weakens, though Simon Durkin did not expect anything ‘catastrophic’ to happen in such circumstances.