Real estate investors, developers and operators have to respond to the increasing demand for quality space in all sectors, from offices to residential and from hospitality to retail, market experts told Real Asset Media’s European Outlook 2020: Europe & France briefing, which was held in Paris last week.
‘The flight to quality is a theme we’ve seen this year and which will be even more visible in 2020,’ said Beverley Shadbolt, Country Manager, France, LaSalle Investment Management. ‘Tenants want to be in a good space and they are willing to pay for that’.
Supply is extremely limited in the office sector in Paris, she said, so ‘we have done a lot of value-add investments recently and we have seen the rental growth come through in our buildings’.
Paris has a lot of outdated stock in the office as well as the residential sector so there is ample scope for redeveloping and repositioning assets to make them more eco-friendly.
Alexandre Martin founded Colonies to respond to the lack of quality housing in Paris. ‘Demand was so high that everywhere was full, so there was no incentive for landlords to make improvements and the quality of housing had really decreased,’ he said. ‘We saw an opportunity to give people a good quality product and good service’.
Shared housing is a step up from student housing, Martin said: ‘The average age of our tenants is 29, they are people who work, can afford a good place and actively choose co-living’.
The model is being exported to other European cities like Berlin and Basel, because demand is high in most countries. ‘Residential will grow tremendously,’ said Martin. ‘It is the asset class with the steadiest fundamentals and the best prospects’.
Urbanisation, like demographics or technology, is a big structural theme that can give an
edge in investment performance. ‘We’ve chosen to hang our hat on the urbanisation theme,’ said Andy Watson, Partner, Europa Capital. ‘We do a lot of residential across Europe and we focus on cities, which are getting younger, while countries are getting older’.
One interesting development is that investors and developers are looking at themes, trends and fundamentals and are not deterred by social or political turmoil, be it Brexit in the UK or the Yellow Vests in France.
‘Europeans are not worried about political risk anymore,’ said Martin Schellein, Head Investment Management Europe, Union Investment RE. ‘Look at Barcelona, which despite the struggle for independence has been outperforming Madrid’.
In such a strong market financing is not an issue. If senior lenders have a conservative approach, borrowers can easily turn to debt or mezzanine funds, said Renaud Jézéquel, General Manager Paris Branch, Helaba: ‘The outlook for financing is very good. We are very positive, it’s been a good year and we really look forward to 2020’.
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