The current low-interest-rate environment is having an ever greater impact on the investment decisions of European professional property investors. The huge demand for safe investments is making core real estate expensive and scarce, and increasingly forcing European investors to turn their attention to alternative investment strategies. The latest Investment Climate Survey by Union Investment shows, admittedly, that the focus is still on safe investments. However, at a time of historically low interest rates, this now offers very little scope for profit. Therefore, there is a growing trend among investors to abandon the well-trodden paths and to take more risks. Especially among British investors, a majority are willing to take greater risks: about two-thirds of decision-makers from Great Britain now accept this as a way of enabling them to achieve appropriate yields again. This trend can also be observed in France. Whereas six months ago only one-fifth of French investors regarded yields as the most important investment criterion, this figure is now 44 percent. In Germany, continuing competition for investment properties in the core segment is likewise leading to concentration on higher-risk, and thus higher-yield, investments, although here yield and safety are still seen as equally important. As an alternative investment strategy, experts here are taking particular notice of investments in properties with shorter lease periods.
Improved economic situation
In addition, there is a growing trend towards involvement in development projects. “Project purchases already accounted for about half of our own investment volume of around €4.5 billion in the past two years”, says Reinhard Kutscher, CEO and Chairman of the Management Board at Union Investment Real Estate GmbH, lending weight to this view. “We expect development projects and the development of existing portfolio properties to play a greater role for investors in the future”, Kutscher adds. The dilemma of safety versus yield is expressed in assessments of future investment strategy. For instance, investors want to invest increasingly in buildings that are used not only by one large tenant but by several tenants, so as to avoid cluster risks. About half of the decision-makers (49 percent) also prefer to concentrate, from the point of view of safety, on core European countries. “The eurozone crisis is having a more sustained impact on investment decisions than expected”, Kutscher explains. “At the moment, however, higher yields can be achieved only if people are prepared to take calculated risks”, he adds. Nevertheless, only a small proportion of investors (14 percent) are considering giving greater weight to investments outside Europe. Although there is growing willingness to take alternative paths, experts believe that the core segment still has growth potential. Rising prices are expected especially in investors’ own countries, but also in the USA. Fewer than one-quarter of those surveyed expect this in Italy, Portugal or Japan. Despite the continuing instability in some European property markets, investors in the three biggest European economies assess their economic situation as better than in the previous year. Only 6 percent believe that their company is in a worse condition. German and British investors also expect a significant upward trend in the investment year 2014. In those countries, 95 and 96 percent respectively expect their company to be in a better position in twelve months. The French, on 78 percent, remain slightly more cautious.
Insbesondere im eigenen Land, aber auch in den USA wird mit steigenden Preisen im Core-Segment gerechnet. Weniger als ein Viertel der Befragten erwartet dies in den Ländern Italien, Portugal und Japan. Trotz der noch immer instabilen Lage auf einigen europäischen Immobilienmärkten schätzen die Investoren in den drei größten europäischen Volkswirtschaften ihre wirtschaftliche Lage besser ein als im Vorjahr. Nur 6 Prozent sehen ihr Unternehmen in einer schlechteren Verfassung. Auch für das Investmentjahr 2014 rechnen deutsche und britische Investoren mit einem deutlichen Aufwärtstrend. 95 beziehungsweise 96 Prozent erwarten, dass es ihrem Unternehmen in zwölf Monaten besser gehen wird. Die Franzosen bleiben mit 78 Prozent etwas zurückhaltender.