‘Real Estate will be the preferred allocation’

Lower for longer interest rates will keep investors interested in real estate but asset managers must follow the mega-trends and find interesting new products

Lower for longer interest rates will keep investors interested in real estate but asset managers must follow the mega-trends and find interesting new products, experts agreed at Real Asset Media’s European Outlook H2: Germany Investment Briefing, which was held in Frankfurt this week.

Panel of the European Outlook H2 – Frankfurt event: Thomas Veith, Partner Real Estate, PricewaterhouseCoopers, Dr. Carsten Loll, Partner Real Estate, Linklaters, Lars Schnidrig, CEO, Corestate Capital Group, Norman Nathan Gelbart, Partner, Israel German Business Group Leader, Pricewaterhouse Coopers, Tobias Schultheiß, Managing Partner, Blackbird Real Estate

‘I am convinced interest rates will stay where they are and that means you have to invest in real estate,’ said Carsten Loll, Partner, Real Estate, Linklaters. ‘As Southern European States cannot afford higher interest rates and Brexit creates uncertainty, the only way the ECB can act is to keep interest rates low for the next 2,3 or 4 years’.

Allocations to real estate ‘are growing and will carry on growing, as more investors want more exposure to the sector,’ said Thomas Veith, Partner, Real Estate, PricewaterhouseCoopers. 

It is most likely that interest rates will stay unchanged, said Lars Schnidrig, CEO, Corestate Capital Group, ‘but even if they do go up a little real estate will continue to be the preferred allocation because it is real, as the name says, and it has to be part of the portfolio’.

Asset managers’ role in such a fast-evolving and fragmented market is to spot the most interesting trends and provide innovative new products to institutionalise, he said: ‘If you find the right product and you structure it for a specific target group then you will find a place in clients’ investment portfolio’. 

An obvious example of this is micro living, said Schnidrig: ‘It is the megatrend, the best you can do as there is low competition and low institutionalisation not just in Germany but across Europe’.

The same pattern can be seen across countries, as students and young professionals want to move abroad and they are no longer prepared to live in sub-standard accommodation. Demand is high and  most markets in Europe are undersupplied. 

‘We are rolling micro living out across Europe and we see a lot of demand from the Continent and from Asia as well because it’s yielding more, 50-100 bps more than residential, even in established markets,’ he said. ‘In Ireland and Poland can get fantastic yields of 7-8% and Spain is also a promising market’. 

No one in this new field can claim to have been around for 20 years, but investors do ask what your track record in operations is, Schnidrig said: ‘They don’t want to invest triple digit millions in operators who will not be around in five years’ time, because they have a 10-year business plan’. 

Residential in all its niches and permutations will be in demand, according to Veith. Looking forward ‘any asset that has a bed in it will be a significant opportunity’, he said. ‘If you have a good, strong operator you can strategically develop a market’.    

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