L’ “Investor Survey” di Union Investment: alla ricerca di strategie alternative

The current low interest rate environment is having an increasing impact on the investment decisions of European players. Massive demand for safe investments is making core properties expensive and scarce. It is also forcing European investors to adopt alternative investment strategies. The latest “ Investment Climate Study”  by Union Investment reveals that investors are still seeking a safe home for their capital, but they face very limited returns due to historically low interest rates. Accordingly, more and more investors are leaving the beaten track and accepting more risk.
British investors most willing to take risks
The latest Investment Climate Index suggests that the majority of British real estate investors are willing to take on greater risk. Almost two thirds of British decision-makers now accept greater risk in order to generate adequate returns again. France is also seeing a trend away from a strict focus on safety towards high-yield investments. Six months ago, only a fifth of French investors regarded returns as the most important investment factor. That figure is now 44 per cent. In Germany too, ongoing competition for investment properties in the core segment is concentrating attention on riskier and thus higher yielding investments, but the country’s investors nevertheless continue to regard returns and safety as equally important. In particular, investors are considering acquiring properties with shorter leases as an alternative investment strategy. There is also a greater trend towards investing in development projects. «Project acquisitions accounted for about half of our own investment volume of some EUR 4.5 billion in the last two years» said Reinhard Kutscher ( pictured) Chairman of the Management Board of Union Investment Real Estate GmbH, Hamburg. «We expect development projects and redevelopments to play a greater role for investors going forward» added Kutscher.
Multi-tenant buildings increasingly popular
The tricky choice between safety and returns is reflected in investors’ assessments of future strategy. On the one hand, 49 per cent of the investors surveyed intend to invest more in secondary locations and thus deviate from a “safety first” approach. On the other hand, strategists are continuing to hedge their bets. They plan to invest more in buildings that are let to several tenants rather than just one, in order to avoid cluster risks. Almost half of the decision-makers (49 per cent) also prefer to focus on core European countries when planning investments, for safety reasons. «The euro crisis is having a more sustained impact on investment decisions than expected. Investors remain cautious in terms of strategy and are taking precautions against defaults» explained Kutscher. «At the moment, though, the only way to generate higher returns is to take calculated risks» he added. Nonetheless, only a small number of investors (14 per cent) are considering boosting their exposure to non-European investments.
Economic outlook and credit terms becoming more important
The supply and demand situation for space at the respective location is the biggest factor influencing the decision for or against an investment property (86 per cent). Having said that, the financial crisis and associated eurozone difficulties have resulted in the economic outlook and in particular credit terms being important aspects for almost as many decision-makers (78 and 74 per cent, respectively). Unlike the last boom period (between 2004 and 2008), when investors hoovered up European properties opportunistically using high levels of leverage, the proportion of debt capital is now much lower and investors are considerably more cautious. The main challenge is to find an investment strategy that guarantees adequate returns despite low interest rates, strong competition and a difficult credit environment.
Although investors are increasingly willing to look at alternatives, the experts polled still see growth potential in the core segment. They anticipate rising prices in the segment, notably in their own country but also in the US. In addition to the core markets, there has also been a surprising improvement in expectations for Irish core properties: 44 per cent of all respondents believe that prices will increase on the Emerald Isle. In contrast, less than a quarter of survey participants are confident that Italy, Portugal and Japan will see prices moving higher.
Alternative investment strategies are essential
The professionals surveyed also expect that sovereign wealth funds from Asia and the Middle East will play a major role in European commercial property markets going forward. «If investors from Asia and the Middle East were to significantly boost their positions in European real estate markets, competition will become even more intense» commented Kutscher. «European investors will be under even more pressure to adopt alternative investment strategies». Already more adventurous than their European peers, British investors firmly believe that other European players need to be much bolder when investing.
Further improvement in investors’ finances
Despite the ongoing instability in some European real estate markets, investors in the three biggest European economies rate their financial position as better than in the previous year. Only six per cent regard their company as in a worse state. German and UK investors expect a further clear improvement in the 2014 investment year. 95 and 96 per cent, respectively, expect that their company will be doing better in twelve months’ time. French property investors remain somewhat more cautious, at 78 per cent.
British investors in particular generally consider the climate for property investment to be significantly more positive than one or two years ago. The change is mainly attributed to improvements in location factors and future prospects. The Investment Climate Index rose to 73 points for the first time in the UK. In Germany, the Index remained almost unchanged at 70, while it rose to 66 points year-on-year in France.
Source : Company