‘Lower for longer’ interest rates in Europe are driving increasing amounts of capital into real estate, which looks like extremely good value compared to bonds, experts agreed at Real Asset Media’s Capital Flows & Investment Opportunities briefing, which took place in Munich recently.
The demand is leading to higher rents in the biggest markets.
‘More than lower for longer it is looking like lower forever,’ said Claus Thomas, CEO, BNP Paribas REIM Germany. ‘Real estate has become an even more attractive asset class and it remains viable but competitive’.
Investors are ready and willing to deploy capital, but ‘they are being much more selective, finding the right opportunities and investing in the right location,’ said Maureen Mahr von Staszewski, Senior Pan-European Fund Manager, Mayfair Capital. ‘They have a long-term view and want income growth. If the asset ticks all the boxes, demographics, infrastructure, sustainability and technology, then they are happy to take the plunge’.
Short term capital from the US is less present in Europe, as yields at home are higher, but there is strong interest from Asia, including Japanese and South Korean institutions, and from Canada and Australia. Many cross-border transactions are done by Europeans because they have no currency risk, which can be expensive to manage.
‘Money is coming for the long term now, which marks a change from the past,’ said David A. Ironside, Managing Director and Encore+ Fund Manager, LaSalle Investment Management. ‘Investors want long term cash flows and more diversified portfolios’.
All investors are cautious: they are willing to pay high prices in today’s market, but they do their due diligence carefully, experts agreed.
In future ‘there will be an increase in the level of debt people are using, simply because debt is so unbelievably cheap,’ said Ironside.
The long-term horizon also means that Asian investors will be coming as joint venture partners and not just as funds, Mahr von Staszewski said.
‘I am very optimistic on capital flows,’ said Thomas Kotyrba, Senior Research Analyst, BNP Paribas REIM. ‘We expect them to remain at the current high levels because the general picture is good’.
Ironside agreed: ‘We anticipate there will be a lot more capital coming this way. The levels of interest are increasing, not decreasing’.