European real estate investors need to look beyond the headlines

What would you say are the key trends driving European real estate investment right now?

The market is currently being shaped by several trends. One is the narrowing spread between government bond yields and real estate yields, which is clearly weighing on the market. The geopolitical situation is also having an impact on investment, keeping energy prices and inflation elevated and creating downside risk.

On the positive side, I think we are seeing some economic growth coming through, even in Germany, but particularly in markets such as Spain, the Nordics and Poland, where economic growth is quite strong and favourable household fundamentals are underpinning consumption. These markets offer good prospects for real estate investment.

Andreas Trumpp

Head of Research
KGAL Group

Andreas Trumpp FRICS is Head of Research at KGAL. In this role, he leads the firm's market and investment research across Real Estate and Sustainable Infrastructure, develops its house view, and acts as an analytical sparring partner to the management board and the fund and investment teams on investment decisions. Before joining KGAL, he was Senior Director and Head of Market Intelligence & Foresight at neoshare AG and its subsidiary PTXRE. Prior to that, Trumpp served as Managing Director and Head of Market Intelligence & Foresight at Colliers, where he led a research team of 20 analysts. He had already worked on the investor side from 2015 to 2022 as Head of Research & Strategy Europe at Savills Investment Management, heading a team of five international analysts. Trumpp has more than 20 years of experience in real estate market research and analysis. He is a regular speaker and moderator at industry forums and conferences, lectures at the ADI Akademie der Immobilienwirtschaft, and serves in a voluntary capacity as co-head of the Real Estate Market Research competence group at gif Gesellschaft für Immobilienwirtschaftliche Forschung e. V. (Society of Property Researchers, Germany). More »

Which European markets offer the best investment opportunities at the moment?

It depends on the sector. In residential, there are a number of markets that are still at an earlier stage of development, such as Poland and CEE countries in general, where I see good opportunities.

There are also more mature markets that offer opportunities because of their variety and market depth, such as the Nordics. Even highly regulated markets can provide interesting opportunities.

We also see opportunities in logistics. In that sector, you can essentially follow the major economic corridors. Overall, there are plenty of opportunities, although pricing and yield spreads remain challenging and geopolitical uncertainty persists. Ultimately, rigorous and disciplined selection is what good asset and fund managers have to focus on.

You mentioned residential and logistics. What are you seeing in the office and retail sectors?

Offices are still being impacted to a certain extent by megatrends such as remote and hybrid working, and now also by AI-related concerns. A lot of people fear that offices are no longer needed, or at least that we will no longer need the amount of office space we currently have.

But there are still good reasons to invest in offices. I would look at prime locations, new buildings and properties with strong public transport connections.

Supply is coming down massively, which means there could be a shortage of good-quality product in the future. If you own the right building, it could therefore turn out to be a very good investment. But it is certainly a more difficult story to tell investment committees today.

In retail, well-located retail parks still offer opportunities, particularly food-anchored schemes.

Is the impact of climate change and increasingly extreme weather in Europe already influencing investment strategies?

Yes, and it will become increasingly important. Heatwaves are already here, and dry conditions during the summer are evident. At the other end of the spectrum, we are seeing torrential rain and flooding.

That makes it increasingly important to look carefully at where a property is located when making an investment.

Defence has become a major investment theme in Europe. Do you see defence-related real estate becoming an opportunity for institutional investors?

I am not entirely convinced that defence real estate is a suitable product for institutional investors. These properties are often located in areas that institutional investors would not usually consider, often outside the top locations, though not always.

There are also very specific risks and requirements connected to these assets. We all hope that it never happens, but in a conflict, the property or the company occupying it could become targets. There can also be very specific security and access requirements, and these are dictated by the military tenant.

You might buy a property with a 10- or 15-year lease, but if you cannot even enter the building as an asset manager, that may not be exactly what you are looking for. You do not necessarily know what is happening inside the property.

For these reasons, I would say defence properties are more likely to remain an investment that governments themselves have to make rather than becoming a major institutional real estate investment product.