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Recalibrating strategies

Union Investment’s latest Investment Climate Survey shows that investors are continuing to move away from a safety-first approach. Strategies are being developed to anticipate new risks and to exploit market opportunities.

Six years after the onset of the eurozone crisis international property investors are regaining their confidence: they are venturing once again beyond Europe’s major cities, considering rather than ruling out the markets on Europe’s southern periphery, and striking more big deals. According to Jones Lang LaSalle, the volume of real estate transactions rose in the first six months of 2014 by more than a third on the prior-year period, and even by a good 50 percent in southern Europe. The search for alternative investment strategies may well be an enduring one. As Union Investment’s latest Investment Climate Survey shows, more and more European property investors are starting to implement their core-plus strategies thanks to high price levels and improved market prospects. Investors especially in the three regions where the survey is conducted – Germany, France and the UK – are showing a greater willingness to accept shorter lease durations in purchased properties, to participate in development projects and to tolerate a reduced level of preletting with project purchases.

Secondary cities as an addition

For the next twelve months one in every two companies will be seeking as part of their investment planning to add more properties from secondary city to their portfolios. Investors are identifying good conditions for venturing into secondary locations primarily in their home markets. However, in addition to the three biggest European markets by volume, investors are including only Sweden, Spain and the Netherlands in their overarching secondary-city strategy to a significant extent. The capital pushing towards Europe means not only that the European protagonists are increasingly willing to once again shoulder more risk. After years of a safety-first approach, especially in France, yield is again the central reason for investment for almost 60 percent of investors surveyed. High demand for scarce property has also prompted portfolio holders to draw up new sales strategies. Exploiting market opportunities to streamline their portfolios, selling off megaproperties or profit-taking will be the order of the coming twelve months for many investors (68 percent). Even if a sustained rise in interest rates has not yet cast a shadow over European real estate markets, investors are not ignoring the potential for associated risks. In general, greater attention is being paid to risk management – the measuring, detection, control and monitoring of varying risk factors – in this context (56 percent). In addition to the preparation of sales portfolios (41 percent) and increased investment in existing properties (40 percent) investors have been engaging in more active risk management of their entire property portfolio (56 percent) over the past twelve months. As the survey shows, 43 percent of investors already conduct stress tests on a regular basis in order to analyse the possible impact of a rise in interest rates on their portfolio or fund.

Over half of the companies questioned have also strengthened their measures to safeguard rental income. The optimistic mood in European investment markets is also reflected in investors’ expectations of their own economic performance. For instance, 65 percent of investors feel that their economic situation has improved on the preceding year; for the next twelve months a similarly clear majority is anticipating a substantial upswing for their own business. And after years of divergence, the national indices which illustrate the investment climate in all three countries are back at a comparable level again – in France in particular, the mood has brightened considerably over the past six months.


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