International capital remains hugely important for the European market and it comes from all over the world, but it is European cross-border investments that are growing the most, Samuel Duah, head of Real Estate Economics, BNP Paribas RE, told Investment Briefings’ Netherlands & Europe Panel, which took place in Amsterdam last week.
‘European cross-border investments have gone up from €33 bn in 2014 to €51 bn now, led by Germany and France,’ he said. ‘European investors know and understand the market and they spread their capital across countries and across sectors. They tend to be eclectic investors.’
Another interesting development has been the return of American capital to Europe. Investment volumes from the US had gone down from a peak of €47.7 bn in 2015 to €25.7 bn in 2017, but last year they went up again to €28.1 bn, a 9% increase.
‘The US was the only growing geography in 2018,’ said Duah. ‘The disappearance of American investors is usually associated with a late cycle. We are supposed to be nearing the end of the cycle and yet curiously we are seeing a rapid growth in US interest. The reason is that they have been buying heavily in the NPL market in Italy and Spain, because they are willing to go up the risk curve.’
Asian investors, on the other hand, tend to be risk-averse and prefer core assets, he said. Their investments in Europe have increased by 20% in the last five years, but last year there was a 19% reduction to €21.4 bn. This was not due to lack of interest: ‘The fall was due solely to lack of assets to buy,’ Duah said. ‘It was a problem of supply, not of demand.’
Weighted average target allocations to real estate continue to increase and are expected to be 10.6% this year. ‘As there is €1 trillion dry powder available, that means there are €11 bn ready to be invested in real estate,’ he said. ‘So the equity is there, the money is there. But the core problem that is holding the market back is lack of supply.’
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