Q: How has Brexit impacted UK and EU real estate investment over the last 12 months?
A:With Brexit uncertainty continuing, European investors have notably adopted a wait-and-see approach to deploying capital in the UK, as the risk, including foreign exchange risk, is hard to price. Over the past 12 months (since June) the total volume of investment transactions was around 15% lower than a year earlier and around 20% off the 10-year average.
Given this UK uncertainty, European property markets have garnered more attention from both global and domestic players. A number of Northern European countries wear the mantle of a de facto safe haven property market, and pricing absolutely reflects this. In addition, other markets that were earlier seemingly overlooked, such as Lisbon, Bucharest and Athens, have attracted more attention.
Q: Do you believe that co-working space will continue to grow rapidly across Europe?
A: Co-working is a response to a structurally changed (office) working model. Today’s workforce wants to have a more balanced work, live and play environment, as well as being better and – preferably – instantly serviced. This clustering of activities and services leads to intensified use of space in urban hot spots. Agile companies understand that for some services it is ultimately more economical to win the war for talent than to win the lowest back office cost. Landlords are responding with providing more flexibility not just in the office offering, including co-working space, but also by proactively helping occupiers to optimise building layouts and contracts, and this will likely continue.
Q: What are the main foreign investment trends in Europe’s real estate market?
A: Europe continues to attract attention from around the world, however the investor profile is ever changing. We’ve recently seen less activity from Chinese and Hong Kong capital sources, while the big sovereign wealth funds have been net sellers. Korean investors have visibly broadened the number of investable markets across Europe. Brussels was a popular destination last year, given the availability of typically longer (governmental) lease contracts; this year, central and eastern Europe (CEE) is attracting more attention.
Q: What is the greatest opportunity and challenge for FDI in Europe’s real estate market?
A: The retail market. Both retailers and retail asset investors have an important opportunity and challenge in figuring out which part of the offline retail market can continue to be operated profitably (structurally) – that is, how and with which product and experience to successfully re-engage with the ultimate customer.
[Separately], we see opportunity in structural growth sectors, such as private rented residential and senior living, across Europe and especially in markets with pent-up demand. Cultural, fiscal and regulatory differences between countries, and even regions, require these strategies to be very locally driven, though. Every market requires its own approach and [partnering] with local operators [is advised].
Q: What are the most exciting or up-and-coming cities in Europe for real estate?
A: In western Europe, Lyon [in France] is one of the few markets in Europe where we will see pockets of growth across all commercial property sectors as well as in private rented residential. It’s a dynamic economy, seeing prevailing tailwinds. Demographics are in its favour while tourism is another stimulus. While assuredly an established market, it’s often overlooked by foreign capital who set their sights on the French capital.
In CEE, Bratislava is booming. Slovakia ended 2018 as one of the fastest growing economies in Europe and it has maintained that momentum. As a result, the country notes low unemployment levels and the local consumer benefits from real wage growth. This means the retail sector in Bratislava has blossomed, and has held up well compared to many western European markets.
Its central location in Europe means its logistics market is readily able to service eastern Europe as well as Germany’s auto industry. Local developers are delivering inspirational office space, and demand has been strong. We see Bratislava as Vienna’s value neighbour.