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Investors weigh hunger for assets against urge for caution

Jamie Olley, Principal, Capital Markets Group, Avison Young

The market is ready to step up a gear but “caution” will be the watchword, experts agreed at Real Asset Media’s Global Outlook 2021 – Europe & UK investment briefing, which was held online recently.

“We’re seeing a real flight to quality,” said Jamie Olley, principal, capital markets group, Avison Young. “Values and pricing will sharpen for the best assets and the longest income.”

Gateway cities will continue to play a big role, quality offices and core assets will be in demand, although there are concerns about the prices of beds and sheds.

And there is a real tension in the market between the eagerness to deploy capital and the need to tread cautiously.

“Capital flows fell significantly in 2020, so there is a lot of pent-up capital waiting to be deployed, but appetite is way down the risk curve,” said Richard Pilkington, senior managing director, head of European real estate, Cain International. “People are still very cautious and will only pursue very specific strategies.”

There are still plenty of investors and backers for the right asset in the right sector in the right city at the right time, he said, but it would be more difficult to sell a pan-European strategy in a less favoured sector.

“People see the light at the end of the tunnel but we don’t expect a huge amount of activity until the beginning of Q3,” said Pilkington. “It will take that long before investors feel confident enough to deploy their capital.”

Despite the slowdown due to the pandemic there is optimism in the air, a sense that things are getting better.

Plenty of reasons to be cheerful

“Of course there are risks going forward, but there are also many reasons to be cheerful about Europe’s prospects,” said Oliver Kummerfeldt, European real estate analyst, Schroders. “It’s a land of opportunity, depending on access to product and your risk appetite.”

The list of positive factors includes the vaccination programme that is going well, leading to the hope restrictions will be eased and consumption will drive growth again. The Brexit deal has been agreed, removing uncertainty from the market.

The ongoing recovery in Asia will help export-driven economies like Germany, he said, the EU Recovery Fund is in place and there have been no major bankruptcies.