We all need to eat, and we all need to stay clothed. To the uninitiated, retail real estate seems like an easy defensive play, relatively resistant in any downturn. It is anything but, however, and the Great Recession has laid bare the shortcomings of any managers who thought that they could simply buy and hold.
During the first quarter of 2015, approximately 2,359 European properties were sold for a total of €63.8 billion in sales price, according to Real Capital Analytics, a 57 percent increase compared with the deals completed during Q1 2014.
The UK commercial property market continues to power ahead, and sentiment toward property investment in mainland Europe is improving in the wake of the ECB stimulus measures. Nothing is certain in this world, but in risk appraisals we find that investors are less worried about Grexit (a Greek exit from the European Union) and more about Brexit, where the United Kingdom leaves the EU.
When I joined Institutional Real Estate, Inc in mid-February as MD, Europe, I went through quite a baptism of fire.
Since the global financial crisis, quantitative easing (QE) has been extensively used in the United Kingdom, the United States and Japan, and their experience gives us some insight into the kind of impact that the ECB’s use of the monetary measure is likely to have on the European economy and its real estate markets.
Real estate investors are currently favouring the hotel sector, both in Europe and further afield. Q1 2015 numbers from the main consultants confirm the interest; CBRE says that hotel investment volume in the quarter across Europe reached €3.74 billion.
A total of 24 private equity real estate funds recorded final closings during the first quarter of 2015, according to Institutional Real Estate FundTracker.
Legal & General Property has announced the final close of its UK Property Income Fund II. It is believed to represent the largest volume of capital raised by a diversified UK closed-end property fund in more than 12 months.
With signs of economic improvement and attractive returns, investors are flocking to European real estate. Southern Europe has seen a dramatic uptick in commercial real estate investments so far this year, particularly in Italy and Portugal, according to Real Capital Analytics.
You couldn’t blame people for moving out. The fall of the Berlin Wall in November 1989 and the opening of the once-impregnable inner-German border was the precursor for a large-scale migration of substantial elements of the population of eastern Germany away from the economic mess and the memory of life in the erstwhile totalitarian German Democratic Republic, with its command-economy five-year plans and a sapping, all-seeing security police apparatus. Freedom is persuasive, and the manner in which it came 26 years ago even more so.
Quantitative easing by the European Central Bank is likely to have global capital market implications, including real estate. We are now contemplating a period in which real estate yields/cap rates may well trend even lower in many markets in the short term.