Europe is likely to experience 鈥渟tyle-drift鈥� in the near future, with investors moving beyond traditional real estate asset classes.
Richard Johnson, global head of real estate business development, told delegates at IP Real Estate鈥檚 first event in Asia that investors in Europe鈥檚 main sectors would inevitably 鈥渄rift鈥� towards alternative sectors.
鈥淭hat will be the biggest challenge,鈥� Johnson said, speaking on an investment panel chaired by ANREV chief executive Alan Dalgleish in Singapore yesterday.
鈥淚t will be tricky not to drift. You don鈥檛 want a client that suddenly wants to invest in a redundant theme park.鈥�
Opportunities, he said, could come out of ageing populations, with the healthcare and care home sectors potentially 鈥渋nstitutionally acceptable real estate鈥�.
With demand for traditional real estate assets high, supply of new properties must now be the 鈥渘ext phase鈥�, Johnson said.
Fellow panellist Hamel Shah, partner at Azimuth Global Partners, said investors鈥� familiarity with legal systems would drive investment beyond capital cities.
Asian investors in London, he said, were surprising market observers by selling assets less than three years after purchase.
Foreign investors in the UK capital, he added, were grasping the fact the city was a trading market.
Meanwhile, BlackRock managing director Thomas Mueller said London could feel the effects of the conversion of office assets to residential.
The purchase of London assets by sovereign wealth funds had in some cases 鈥渢aken assets out of the market for good鈥�.
In a separate presentation, Mueller said, with continued yield compression in the core sector, BlackRock was looking to 鈥渕anufacture鈥� core properties.
Prime yields, he said, could compress by a further 50 basis points.
鈥淐ore is not the way forward,鈥� Mueller added. 鈥淎 value-add approach is therefore the right strategy.鈥�
Sparinvest Property Investors partner Marko Multas said a lack of product had created the risk of being 鈥渟tuck with uninvested capital鈥�.
鈥淢ore product is now slowly becoming available,鈥� Multas said, adding that, in Finland, more opportunities were emerging in the healthcare sector.
鈥淭here are a lot of deals to be done, but investors need to be comfortable with the kind of returns,鈥� he said.
Germany鈥檚 student housing sector, according to speaker Philipp Rohweder, vice-president at , is a credible alternative, with opportunities beyond major German cities and in less obvious locations.
The event鈥檚 panel also considered geographic diversification, in addition to a move into new sectors.
Johnson said that, a decade ago, the panel was more likely to have been sitting in Europe and considering 鈥渨hether to invest in Kuala Lumpur or Shanghai鈥�.
鈥淓urope is the 鈥榣east ugly duckling鈥� and in vogue,鈥� he said.
While Multas said there were now 鈥減ockets of growth鈥� in Europe, the event鈥檚 keynote speaker, professor Sotiris Tsolacos of Henley Business School, said the Continent 鈥� although still 鈥渧ulnerable鈥� 鈥� now offered more fiscal discipline, with EU member states now screened for their economic health.
That, he said, should give investors more comfort than in previous years.
By the end of the first quarter, around 鈧�23bn had been invested in the UK, with Germany and France attracting 鈧�9bn and 鈧�4bn, respectively, according to head of international real estate Philippe Peirs.
With a focus on the three countries, the company will not rule out a 鈥渂ite-size investment in a liquid city鈥� elsewhere, he said.
The future of Europe鈥檚 cities was analysed by director Andrew Rich, who pointed out that Paris was likely to be superseded by Istanbul as a fashion capital.
His company, he said, had identified 42 global cities it considers ripe for investment following a study of 鈥渕ega-trends鈥�.
While TH Real Estate has kept the list under wraps, it sees more growth in Africa and the Asia-Pacific region.
Investors are, Rich said, looking more to cities than sectors, with a preference for urban markets with young populations and a rising middle class.
