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REALX.Global: real estate heads for the ‘Roaring Twenties’

Jim Costello, Senior Vice President, Real Capital Analytics

Real estate could be heading into the ‘Roaring Twenties’ as the market bounces back after the pandemic, delegates heard at Real Asset Media’s Global Capital Flows & Investment Opportunities, which took place online this week on the REALX.Global platform.

The fact that the US is now under a new administration and with a huge stimulus package is attracting attention.

“There are forces in the US that are beneficial to real estate, signs of growth and inflationary pressure,” said Jim Costello, senior vice president, Real Capital Analytics. “If interest rates go up because there’s a strong recovery, that could drive demand for property.”

Already by December 2020 there was a spike in transactional activity which reached a high never attained before, but “the reason was the rush to complete deals before the Biden administration came in, for fear of changes in the tax policy,” Costello said.

Last year, while cross-border activity froze in Europe, the US market did not see a marked change. “Foreign capital did not leave the US, where it was easier to get around than in Europe,” Costello said.

Japanese investors’ preferred destination has always been the US and that is unlikely to change.

“Japanese capital has a policy of ‘America first’, to coin a phrase,” said Andy Watson, partner, Europa Capital. “They like the transparency, the availability of data and having one language to deal with. They are risk-averse and cautious, so Europe is a harder call for them to make.”

Core and core-plus the standard as caution sets in

Caution is now seen across the board. In the new INREV survey of investor intentions, core and core-plus replaced opportunistic and value-add as the most favoured strategies.

“There’s a move towards safety, all institutional investors want secure, long-term income,” said Tobias Schultheiß, managing partner, Blackbird Real Estate.

In Europe, most investors head for the most liquid markets like Germany, Benelux, France and the UK.

The UK market has seen five years of decline triggered by Brexit uncertainty: 2015, the year before the referendum, was the peak for investment volumes, while in the rest of Europe it was 2019, according to RCA data.

“The UK is still number one for cross-border investments, but the pace slowed considerably and pricing was affected as well,” said Tom Leahy, director of market analysis EMEA, Real Capital Analytics. “While Paris accelerated, London was static because liquidity fell. It used to be first in the liquidity rankings, but now it is 16th.”

But now the negative trend could be reversed, as the Brexit uncertainty is over and the vaccine roll-out is going well.

“The Brexit deal has brought some clarity and it will encourage investments, although I’m not sure that longer term it’s a positive for the market,” Leahy said. “London has lagged behind most other major real estate markets, so there’s an opportunity for some catching up this year, as it remains an attractive global city. We could be heading into the Roaring Twenties.”