For as long as buying real estate is investors’ main concern the sector will remain in good shape, delegates heard at Real Asset Media’s European Outlook Investment Briefing, which was held at PricewaterhouseCoopers’ Frankfurt office last week.
‘Buying real estate is the real market driver,’ said Dominique Pfrang, Senior Manager, PwC. ‘People feel there is some risk in the market and they are concerned about possible bubbles, but they are still very keen to invest in the sector’.
Pfrang used Google Trends to access data on search enquiries over the last 15 years, which show that at the end of 2019 in Europe there was a sharp increase in interest in real estate bubbles and also a spike in searches on selling property. However, these searches are dwarfed by the level of interest in buying assets, which is a signal the market is healthy.
‘Interest rates are low and there’s still a comfortable buffer between bond yields and prime office yields, so we expect transaction volumes to stabilise at high levels in 2019,’ he said. ‘The figures are looking good and our forecast for 2020 that volumes will stay there, in Germany as well as in Europe’.
The top 5 economic risk factors for real estate investors are construction costs, followed by European economic growth, the availability of suitable land or assets for acquisition or development, global economic growth and cybersecurity in fifth place.
The top 5 social risk factors, according to PwC’s Emerging Trends 2019/2020 survey, are international political instability, far ahead as a concern above European and national political instability, housing affordability and national politics.
‘It is interesting that it’s the real economy, not the financial markets that are the main concern, and in particular construction costs going up,’ said Pfrang. ‘When it comes to political concerns there is more worry about the impact of US/China relations than about the situation at home’.
The survey shows some changes in investors’ favourite sectors, with Logistics moving from second to first place in the rankings, followed by retirement or assisted living. Co-living, which was number1 last year, is now in third place, with PRS up from 7th to 4th place and Student housing up from 6th to 5th place.
‘The overall tendency shows that investors are looking for returns,’ said Pfrang. ‘All these managed properties provide the necessary triggers to get more out of an asset and increase its value’. In general, he said, ‘investors know that you need to have good asset management to make your assets work. There is no such thing as easy money’.
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