EXPO REAL: Capital Flows & European Deal-Making A2.232 - International Investors Lounge by PropertyEU - EXPO Real, Messe München GmbH, Messegelände, Munich, 81823, Germany | 10:30 - 11:30

Europe offers ‘the best opportunities in the world’

Foreign capital will continue to flow into European real estate and strong interest from international investors is leading to rental growth, panellists agreed at the PropertyEU Capital flows & European deal-making briefing, which was held at EXPO REAL in October.

‘The most interesting opportunities our global investment council sees are in Europe,’ said Sophie van Oosterom, CEO & CIO EMEA, CBRE Global Investors. ‘The differences in yields and hedging costs from the US to Europe make deploying capital in Europe very attractive for US investors as well.’

Half of the investment into Europe has been cross-border, with flows from Asia-Pacific up by 27% in Q2 2018 and capital from the Middle East back after a pause with a 35% increase, according to BNP Paribas Real Estate data. Total foreign investment into Europe in Q2 this year has increased to €137 bn, a 13% jump on Q2 2017.

‘European investors, especially the German funds, remain very strong and have a real spread across European markets, but this year the most exciting investments have come from Asia,’ said Larry Young, head of international investment group, BNP Paribas Real Estate.

With so much capital looking for deals competition for assets is a real issue, said Arvi Luom, managing director, head of European investment, W.P.Carey: ‘Europe has a lot of traction so you have to dig deep to find the opportunities, but we also look beyond the obvious places like London or Berlin to more regional markets with a long-term view.’

Having 20-30-year commitments means that ‘we have to look at political risk and ensure the asset can survive any turmoil, so our portfolio is overweighted to Western Europe,’ he said.

CBRE Global Investors have also revised their strategy to avoid turmoil, said van Oosterom: ‘We have been de-risking a lot in terms of the quality of the assets and we have really focused on an urban strategy based on the sustainability of cashflow.’

The fear of instability is benefitting Germany, said Heinz Joachim Kummer, partner, CMS: ‘In the last three years we have seen tremendous capital flows into the country, with money coming from Asia, Russia or the US because Germany’s reputation as a safe haven still works in our favour.’

The real estate market is very strong across Europe, especially for investors who focus on fundamentals like supply and demand and who do not get distracted by short-term political issues, said David Ironside, CIO Continental Europe, LaSalle Investment Management.

Rental values are below their peak in the main European cities, so there is room to grow. The reward for investors who do find the opportunities is rental growth, he said: ‘We see returns coming primarily from long-term rental growth and we focus on those markets that we believe will deliver it. There are many good opportunities in Europe now and such strong demand is driving rental growth, so we are able to raise money. Conditions are such that capital raising has become relatively straightforward.’

Raising money is not an issue in today’s market, agreed Joseph Ghazal, managing director, head of capital deployment Europe, Prologis: ‘The problem is not finding capital, but rather finding where to invest it. We have been investing in Europe for twenty years and we are more risk averse than others because of our experience of how the market can go up then down then up again.’

Now there is room for optimism, though, as the logistics market in Europe is very healthy with capital flowing in from all Continents, he said: ‘We are beginning to see rental growth and we think it will continue. In the last four years our portfolio in the US has seen rental growth of 25% and even 50% in some places. It is currently unimaginable in Europe, but I believe it is coming.’