Global investors are increasing their allocations to European real estate, with growing interest in some of the markets most affected by the financial crisis.
That’s according to LaSalle Investment Management’s Mid-Year 2014 Investment Strategy Annual (ISA), which looks at investment trends around the world and highlights the best investment opportunities going forward.
The global report reveals that the starkest upside surprises are found within Europe—the fastest growing G-7 countries in 2014 (UK and Germany), the biggest drops in sovereign rates (Ireland, Italy and Spain), and the most creative Central Banks (the ECB’s negative interest rates and the Bank of England conditioning the market to expect rising interest rates).
Mahdi Mokrane, LaSalle Investment Management’s head of research & strategy, Europe, says: “The positive momentum in Europe is probably well grounded and it is no surprise that global investors are up-weighting to European real estate. Capital flows into the region continue to progress and there is now increased appetite for risk in Core markets and more interest in markets that were previously not on international investors’ radar screens such as Spain, Italy and Central Europe.
“However these broad trends can’t hide the fact that Europe’s real estate markets continue to run at different speeds. At the forefront is London and the wider South East UK, which boast both appealing real rental growth prospects in central locations, along with more attractively-priced income in London’s transit-linked submarkets such as Hammersmith, King’s Cross or Farringdon. We believe long-leased (inflation) index-linked assets in alternative sectors such as student housing, hotels, and healthcare, are attractive for defensive core strategies. Whilst there are mounting risks of an overheating housing market in parts of London, the supporting values in this undersupplied sector bode well for many residential or lodging-based investment strategies. This extends to the private rented residential sector and hotels.”