‘Risk off’ to ‘risk on’ change underway as investment sentiment improves, says M&G Real Estate
Investor attitudes to risk have improved significantly over the past 12 months, fuelling strong investment and real estate transaction volumes at a five-year high, according to fund manager M&G Real Estate.
The M&G Real Estate Continental Europe Real Estate Market Outlook indicates that appetite for risk is set to keep rising throughout 2014 and into 2015 as the Eurozone economic recovery begins to take place.
This growth, combined with an expensive bond market and the prospect of interest rate rises impacting bond returns, means investors are likely to continue to increase real estate allocations.
Although there are significant challenges, not least high debt levels and relatively weak labour markets, the Eurozone is scheduled to see one per cent real GDP growth over 2014. This helps lay strong foundations for a return to "more normal rates of economic growth in the medium term," says Richard Gwilliam, head of property research, M&G Real Estate.
"A 'risk on' investment sentiment does not mean 'brain off'. We are not going to see significant rental growth across the board: it will be focused in the North primarily in Germany and the Nordics. Furthermore, we are also predicting further yield compression owing to increased investor appetite."
M&G Real Estate predicts that the highest rental growth over the next five years will be for prime high street shops with only moderate rental growth in the European office sector - both Stockholm and Munich, with employment growth and robust economic activity, provide the right conditions for office investment over 2014.
“The lack of supply in prime industrial real estate will encourage strong growth returning rents to pre-recession levels within the next five years," says Gwilliam.
However, for the strongest prime total return in 2014, the logistics sector should attract investor attention. It offers the level of scope to provide higher income return and capitalise on further yield compression. The principal logistics hubs – Germany, the Nordics and the Netherlands – are predicted to attract positive performance driven by a combination of stronger occupier and investment demand. Interestingly, Poland’s proximity to export-led Germany will provide indirect benefits particularly when seen in relation to the rapid growth of e-commerce.
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