A further $2.5 trillion of fresh capital could be invested in real estate by 2020 as private investors increase their exposure, delegates heard at Real Asset Media’s Emerging Hotspots Investment Briefing, which was held at MIPIM last week
‘Over the next three to five years we will see sources of capital changing from institutional to private wealth,’ said Damian Harrington, Director, Head of EMEA Research, Colliers International.
Family offices, High Net Worth Individuals, foundations and private sector pension funds will become more active in the market. At the moment institutions’ allocation to real estate is 10.4% of a total pot that globally amounts to $165 trillion, but there are no figures for private investments.
‘If private wealth were to match the allocations from institutions, the amount of capital looking at property could hit $2.5 trillion by 2020, so there is a lot more money coming to the market,’ said Harrington. ‘If you put that in the context of the total spent last year, which was $1.5 trillion, then you realise that $2.5 trillion is a big number’.
In order to deploy that huge amount of capital, investors ‘will have to diversify and more across markets, across geographies and across sectors to try and find opportunities wherever they can,’ he said.
Looking at sectors, offices have stayed largely flat while retail started a comeback last year after a period of decline. The real momentum, however, is in logistics, up 89% since 2010, residential (+159%), hotels (+90%) and development sites (+659% off a low base). Investment in residential has so far been highly concentrated in Germany, the UK and the Nordics so there is a lot of potential elsewhere in Europe, Harrington said.
A lot of capital will target cities, following the urbanisation trend and the demand for residential. ‘If we look at cross-border capital going into cities we see that Europe is already very international, attracting investment from all over the world, but over the next few years we will see a lot more capital coming from Asia,’ he said. Cities will offer the most opportunities.
From a global perspective, Europe looks like a good end of cycle yield spread option. ‘If you look at EU sectors relative to Asia and America on a yield spread basis, Europe actually offers the best spreads,’ Harrington said. ‘Particularly European logistics, but also retail and offices. This is going to continue bringing the money in’.
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