Investors have retrenched into their domestic markets in recent months, but there are signs that is about to change, experts agreed at Real Asset Media’s How Much of What and Where? Asset Allocation in the Investment Market briefing, which was held online this week.
“Capital flows from outside Europe have dropped significantly and are down to 2014 levels,” said Doris Pittlinger, managing director, fund management Europe, Invesco Real Estate. “It’s mainly European investors that are active in the market now, but we are seeing some careful interest coming from the US, looking at investing in Q1 2021.”
In the short term, investors are likely to focus on their home markets or adopt a wait-and-see attitude, but already by the beginning of next year things could change, especially if restrictions on travel are lifted.
Returns are good and there is appetite for opportunities
“There is a pause among international investors because of travel restrictions and practical hurdles that need to be overcome,” said Claus Thomas, CEO, BNP Paribas Real Estate Investment Management. “But there’s appetite out there, returns are still good and people are interested in looking at potential opportunities.”
Over the medium term the recession will have a harder and more significant impact than the health crisis, he said.
“Everyone still supports real estate investments, but everything is harder and restrictions on travel are the biggest logistical barrier,” said James Farmer, director acquisitions, Europa Capital. “We are active in the market because we are lucky to have partners on the ground in every country we operate in.”
The lack of foreign competitors presents an opportunity for local investors to step in.
“The market is not as busy as it was last year, when we were battling South Korean or US capital for every asset,” said Farmer. “So we try to take advantage of that.”
Covid and Brexit combine to make investors UK-wary
Many investors are wary of the UK because of the combination of Covid-related economic slowdown and Brexit uncertainty, while Germany still seems to attract foreign capital.
“Germany seems to be in a better position, with international as well as domestic capital looking at assets, which makes for a very competitive environment,” said Thomas. “The market has picked up considerably, especially the core segment, and prices are holding up.”
However, transaction volumes do not reflect the way the market has changed and become skewed.
“Looking at the figures Germany and Denmark are the two big winners in Europe, with the highest capital flows, but that masks the fact that we’ve had a few huge transactions but not the many smaller transactions,” said Pittlinger. “You have to look at context. But looking ahead, the wall of money is still there so there will be a lot more investment in real estate.”