Where is the property investment potential in 2018?

Real estate investors see 2018 being marked by the abundance of capital, the pressure to invest, and the search for alternative niche sectors.

According to a recent report:

• 50% of respondents believe that there will be more capital availability, showing more optimism than in previous years.
• 36% recognise that yields or returns on investments will be lower than in previous years.

In 2018, the European real estate market is optimistic thanks to favourable macroeconomic prospects. However, there is some caution regarding the greater difficulty to meet profitability objectives and the scarcity of prime or quality assets.

This is one of the main conclusions of the report – Trends of the Real Estate Market in Europe 2018, prepared by PwC and the Urban Land Institute, based on 818 interviews with the main agents of the sector: real estate companies, institutional investors and investment funds, and financial institutions.

Regarding the macroeconomic perspectives:

• 42% expect an improvement in the European economy in 2018.
• 51% expect an increase in corporate profits.
• 49% expect growth in employment in the sector.

From the point of view of financing, investors are even more optimistic than in previous years.

• 50% believe that there will be more capital availability.

Despite such optimism, there is still caution in the sector

The inclination to act prudently is due to the fact that yields or returns on investments are lower than those of previous years – according to 36% of the respondents – and with a strong pressure to invest. However, there is also a lack of prime or quality assets and the recognition by the majority of investors, around 86%, that they are taking more risks to meet their profitability expectations. People are not aware of where to look to find assets worthy of prime value and guaranteed to give returns. Many are trying to guess when investing rather than taking the help of professionals similar to Finlay Brewer and others that know the market well.

These factors are compounded by potential social and macroeconomic risks, for example, rising interest rates in Europe in the short term, or increasing political instability internationally, a concern for 81% of investors in the sector.

Brexit remains an important point of unrest for investors. In fact, the majority of respondents expect a fall in investment and a fall in the value of the UK real estate sector this year. A decline that will be offset, at least in part, by an increase in these same variables in real estate markets in other countries of the European Union such as Germany, Spain, France, and Luxembourg.

The most attractive sectors for investment in 2018

The report reveals that the logistics sector has become the most attractive sector in 2018 for investment and development as a result of the growth in e-commerce and a greater demand for storage centres.

It is striking that the residential sector, traditionally unattractive due to its complexity for investors, is now seen as an opportunity based on the needs of the European market. It also highlights the search to acquire quality assets, an attractive alternative for 69% of investors.

In addition, more than half of the respondents are considering investing in niche markets such as student residences, hotels and residences for the elderly, due to the opportunity derived from demographic trends and their attractive profitability. Probably, they might take assistance from reputed professionals (like these Crawford Home Buyers, for instance) in their vicinity to aid them with their planning.

Paradigm shift

The study confirms how a new concept of real estate is being imposed in Europe, where the creation of value transcends the asset to focus on the management of space as a service.

It also notes how technological development, digitalisation, more flexible forms of work, new trends in mobility and urbanisation are becoming a reality that promotes the transformation of industry in Europe.

Thus, 85% of investors say that in the next few years, data analysis will impact investment decision-making and that the sector’s own agents acknowledge that they do not have adequate capacities in the new environment. Technology has had a substantial impact on the real estate industry, with its potential to foresee areas for investment. Furthermore, the development of real estate team software has meant that estate agents can be more efficient when it comes to helping somebody find the right property. Technology like this will therefore become one of the major forces which shape how real estate companies operate in the future.

Experts in the field, such as Gerald Eve International Property consultants, confirm that the real estate business model has changed as a result of a new orientation toward the concept of management of space as a service.