European real estate investors enter 2019 with subdued expectations

Lower expectations for business performance in 2019 are further dampening the prospects for real estate investment in Europe, according to Union Investment’s latest investment climate study, which involved polling 150 real estate investors in Germany, France and the United Kingdom.

Approximately 41 percent of the property professionals surveyed expect the real estate investment climate to deteriorate over the next 12 months, while only 22 percent expect a noticeable improvement.

“The subdued expectations of European real estate investors for 2019 suggest that professional investors are very aware of the challenges and risks inherent in a late-cycle market and are unwilling to experiment,” said Olaf Janßen, head of real estate research at Union Investment. “For the real estate industry as a whole, this can be seen as a positive indication of conscientious risk management.”

An investment strategy that accepts a lower return for the same level of risk is correspondingly popular in the current market environment. Around half of German and French real estate professionals are pursuing such a strategy, rising to 86 percent of professional investors in the United Kingdom.

There are significant differences with regard to expectations for 2019 in the individual national markets. While around half of property investors from Germany and the U.K. rate the outlook as negative, most of the optimists can be found in France. Approximately 40 percent of French respondents expect a noticeable improvement in the investment climate; only 24 percent are preparing for a slowdown.

Germany and the United States are the most popular investment destinations in 2019

The survey participants were also asked which European countries they saw as offering the best overall conditions for real estate investment in 2019 across all property types. At 31 percent, Germany was the most-named country. France and the United Kingdom followed a long way behind, each garnering around 13 percent. Spain, the Netherlands, Sweden and Austria are also seen as offering good conditions for investment in 2019.

“The survey revealed that investors intend to focus very much on their own home markets. At the same time, Germany’s strong position relative to other European property markets is clearly apparent,” said Janßen. “One in three professional investors in France and one in five of their British counterparts name Germany as their market of choice in 2019.”

Among non-European markets, the United States remains the clear leader, with 53 percent of all respondents with a correspondingly broad investment remit citing the United States as their favorite country for real estate investment outside Europe. By contrast, Australia and Japan barely register on European investors’ radar, at 13 percent and 10 percent, respectively.

“Due to higher hedging costs, European real estate investors are likely to be less active in the United States in 2019 than in previous years. Given the similarly difficult conditions in other international markets, the U.S. markets nonetheless retain their stand-out importance,” explained Janßen.

Low expectations index drags down overall index
The relatively low expectations of European property investors for 2019 are also reflected in the overall index. Compared to the survey conducted a year ago, the investment climate index for Germany has declined to 63.2 points (minus 4.1); France stands at 66.8 points (minus 2.3), and the United Kingdom scored 60.1 points (minus 3.5).