Even though we are currently in the late phase of the real estate cycle, no significant drop is expected in the coming period. Jos Tromp MRICS, CBRE’s Head of EMEA Research shared his projections for the European property investment market at Portfolio Property Investment Forum in Budapest. These were his key statements and predictions.
Global economic growth may last for another 6-12 months. The US will hit a recession in 2020 as a result of which European economies will slow down.
Global real estate investment volumes have been steadily rising since 2009 with an abundance of equity and debt funding available for real estate investments. The growth has been extremely strong in continental Europe while the deployment of UK-based capital shows a clear decline mostly due to Brexit-related concerns.
German capital into the rest of Europe has been slightly declining as German investors are struggling to find quality product. At the same time, we have observed more French capital going into the rest of Europe. Asian capital is also flowing into Europe, even though China’s economic growth is slowing down, as capital inflows from South Korea, Singapore and Hong Kong have increased. US capital flows into Europe are also increasing.
Prime yields are as low as they ever been and we are not going to see a strong increase to long-term interest yields which means that the spread with real estate yields will remain. Furthermore, lending conditions are still favourable and the market is a lot more sustainable from a financing point of view than it was in the previous cycle.
Nevertheless, in a low-yield environment, we need rental growth for property investment to stay sustainable. In terms of market segments, office investments are still attractive as low vacancy and limited construction drive rental growth. On most European retail markets rents are under pressure due to structural changes (such as the increasing popularity of online shopping) on the market. Some markets, however, are more protected than others, from the effects of e-commerce. The prospects are also favourable on European logistics markets where vacancy rates are coming down even though construction activity is increasing.