Industrial Most Sought-After Asset Class For European Commercial Real Estate Investors
Paris, Madrid, Amsterdam, Frankfurt and London most sought after European cities for investment
33% of investors plan to deploy more capital in 2018 than in 2017
Platform activity to remain strong in 2018
70% of investors actively pursuing investments in alternatives
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WEDNESDAY 14th March 2018 – Industrial, and specifically logistics, is the most sought-after real estate sector for European investors, overtaking office for the first time, according to CBRE’s annual EMEA Investor Intentions Survey being released at MIPIM later today. With the growth of e-commerce continuing to benefit the sector, a third (33%) of respondents in Europe expressed a preference for industrial property, mirroring the trend globally, and reaffirming its status as an institutional asset class. This is a trend that is also being experienced in Ireland according to Marie Hunt, Head of Research at CBRE Ireland with an increasing proportion of investors looking for opportunities to invest in prime industrial and logistics assets in the Irish market over the last 12 to 18 months in particular.
Across EMEA, office was ranked second, favoured by 26% of respondents, with investors seeking markets with strong economic fundamentals to underpin rental growth and high-levels of liquidity. Residential has seen the steepest rise in popularity, compared to 2017, and was the preferred asset class for 21% of EMEA respondents.
A defining feature of the market last year was the rise in sales of large portfolios, specifically ‘platform’ deals. Notable transactions in Europe included Blackstone’s €12.2 billion sale of the Logicor Portfolio to the China Investment Corporation and Brookfield’s $2.8 billion sale of IDI Gazeley to Global Logistics Properties. Not only did the purchasers, typically large Asian investors, access the market at scale, but by buying an operating platform they also acquired the infrastructure and management expertise to manage the assets and continue to develop the portfolio.
Jack Cox, Head of EMEA Industrial and Logistics Capital Markets, commented:
“2017 was the year the industrial and logistics sector was unquestionably re-rated, evidenced by the number and scale of platform deals we saw in the sector. Logistics yields remain at a premium over other real estate sectors, and the sustainability of returns in the sector is underpinned by a robust occupational market, which is attracting investors from around the globe.”
Driven by aggressive asset pricing and limited availability of core stock, investors globally have become increasingly resourceful in finding innovative ways to deploy capital. In EMEA, 72% of respondents indicated that they were already invested in alternatives and 70% said they were actively pursuing opportunities in the sector.
Alternatives have seen a 45% increase in investment volumes in the last ten years, resulting in €23.6 billion of transactions in 2017. Investors are most frequently targeting student housing (53%), retirement living (38%) and real estate debt (37%); an area where they are looking to increase exposure in 2018. This broadly mirrors the trends we are seeing globally.
In addition to sector preferences, the survey also analysed geographic considerations. Paris, Madrid, Amsterdam, Frankfurt and London were the five most sought-after destinations in Europe for European investors. Paris jumped from fifth to first place, compared to 2017, boosted by expectations that the political and economic momentum from H2 2017 will have a positive impact on the real estate market. London remains the highest priority target for investors outside of Europe and will undoubtedly continue to see the highest volume of investment activity of any European city.
Jonathan Hull, Managing Director, EMEA Investment Properties, CBRE:
“While sentiment does not always translate directly into investment volumes, investor preferences do indicate which markets may see heightened activity over the next 12 months. We have seen a shift in sentiment in France for many months now, following the election of President Macron and the subsequent economic momentum this has created. Madrid has seen strong investor interest thanks to improving economic fundamentals. Limited development activity and declining vacancy rates in Amsterdam have boosted its appeal over time. The current strength of the German economy and the lack of supply continue to drive investor demand in all of its key markets.”
Despite 2017 being a record year for real estate investment in Europe, with volumes totaling €291 billion, European investors expect to deploy more capital in 2018 than they did in 2017. A third of EMEA investors (33%) expect to spend more this year than last, compared to 26% last year. At a global level, 45% of investors anticipate committing more capital to real estate. However, as in 2017, availability of product remains a primary concern for investors in 2018, proving to be the biggest obstacle for 34% of European respondents, a challenge that investors are facing around the globe.
Asset pricing has become a key concern for investors, and is even more pronounced than in last year’s survey. Nearly half (44%) of EMEA respondents highlighted it as an obstacle to investment, compared to 38% in 2017. At the same time, the sector continues to appear reasonably priced relative to other asset classes, particularly considering the high-income return and defensive characteristics real estate offers. Competitive pricing of assets is also encouraging some investors looking to sell real estate, with 40% of investors expecting to sell more in 2018 than in 2017. A higher propensity to sell as well as to buy bodes well for market liquidity in 2018.
Johnny Horgan, Head of Capital Markets at CBRE Ireland said:
“The supportive economic backdrop and strength of underlying occupier market activity in Ireland continue to attract investors from a range of jurisdictions, with Ireland’s comparatively attractive yield profile also encouraging investors to consider opportunities in the Irish market. Although sourcing core product and deploying capital remains challenging, a number of assets have been formally released for sale since Christmas (both on and off market) while others are being prepared for sale later in the year, which should alleviate supply pressures somewhat. A very clear dynamic is the focus on ‘alternatives’. We expect to see continued strong demand for alternative investment opportunities over the coming months with any Build-to-Rent opportunities that are brought to the market likely to be particularly keenly bid”.
The Investor Intentions Survey was carried out between 26 December 2017 and 24 January 2018. The survey attracted 1,010 respondents globally. This report covers the 350 respondents who indicated to be responsible for investments in EMEA.
The responses were spread across a range of investor types. The most numerous were fund / asset managers, who accounted for 44% of survey participants. Insurance companies, pension funds and sovereign wealth funds were responsible for 15%. The other respondents were developers (9%), private equity (7%), private individuals / family offices (7%), listed property companies (inc. REITs) (7%), private property companies (5%).
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2017 revenue). The company has more than 80,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com
CBRE U.C., (CBRE Ireland) registered in Ireland, no. 316570. PSRA Licence No. 001528 is the country’s largest commercial real estate services company with offices in Dublin and Cork. Currently employing over 135 employees, we work with occupiers, investors and developers of office, industrial and logistic, retail, hotel and healthcare property, providing strategic advice and execution for property sales and leasing; tenant representation, corporate services; property and project management; appraisal and valuation; development services; investment management and debt advisory; business rates and compulsory purchase and research and consulting. Please visit our website at www.cbre.ie