Emerging Trends in Real Estate Europe 2014: Key Themes

Emerging Trends in Real Estate Europe 2014: Key Themes


Kees Hage
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Kees Hage

Global Real Estate leader

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Global Real Estate leader
Tel: +352 49 48 48 2059
Craig Hughes
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Craig Hughes

UK & Global Sovereign Wealth Fund & UK Real Estate Leader

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UK & Global Sovereign Wealth Fund & UK Real Estate Leader
Tel: +44 (0) 20 7212 4183
Simon Hardwick
Emerging Trends in Real Estate Project Leader
Tel: +44 (0) 20 7212 3266
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What are the emerging trends for 2014?

Europe’s real estate industry expects more and better in 2014. It is more confident about its prospects and its ability to improve profits. Headcounts, too, have a better chance of growing.

This belief is spread widely across the continent. Europe’s economy is growing, and political uncertainty over its future declining. Ireland is seen to be improving; Southern Europe is thought to be past the worst. Equity is flowing in, and debt is becoming easier to find – though how much easier, depends on where and for what.

Risk, too, is no longer a dirty word. As Europe’s economy improves, the real estate industry is venturing out of its bunker.

What did our survey respondents say?

"Today is better than last year. Next year will be better."

"People are beginning to look for reasons to say ‘yes’ rather than saying ‘no’."

"People are now looking forward rather than looking back."

"There is money to invest. The only problem is finding a good opportunity."

"For core deals, there is plenty of capital."

"We must keep a cool head and take risks that are known and controlled.


With the European economy improving, the real estate industry is venturing out of its bunker. It is moving into areas that last year would have been regarded as no-go: Spain, Tier 2 cities, less-than prime buildings in Tier 1 cities, development and adventurous alternatives, such as student housing, data centres and real estate debt.

This movement is partly down to the battle for prime assets. Global capital is flowing into Europe and competition for the best buildings in the best locations of its gateway cities is intense. The time has come to look further afield, to other markets where prices and lot sizes are more digestible. And equally importantly, debt too is now starting to be available for these assets.

What did our survey respondents say?

"Core real estate in Europe is perceived to be very pricey these days."

"Cash is chasing limited product with a shift toward secondary where last year only prime property was being purchased."

"Secondary property has started to warm up and will accelerate as prime property becomes scarce at affordable prices. However, some secondary which is probably tertiary remains worthless."

"Properties just outside of core segment can offer higher yields with relatively low risk"

"The rental market remains behind the investment market, but it differs from city to city."


Nowhere is the change of mood more striking than in the industry’s willingness to contemplate investing in Southern Europe, and Spain in particular. Last year, Emerging Trends Europe earmarked Spain as a market to watch, but the switch from “no-go” to “good opportunity” has been surprisingly rapid.

That said, Europe’s real estate industry is staying sober: ‘safety-first’ remains the mantra. Trophy buildings and core properties in London, Paris and Germany’s “Big 5” cities will still be sought by investors with deep pockets and long time horizons – many of them foreign. Lenders, too, have no qualms about financing these assets.

This dichotomy between ‘risk-on’ and ‘safety-first’ shows up in the ratings respondents to Emerging Trends Europe’s survey give cities for their 2014 prospects. Munich is ranked Number 1 for existing investments – followed by Dublin. And Dublin took first place for new investment, while Madrid, Barcelona and Athens, which were at the bottom of the prospects league last year, are ranked mid-table for 2014.

What did our survey respondents say?

"Spain is coming more and more into focus."

"Spain may offer one of the strongest recoveries within the Eurozone and at present, attractive pricing is resulting in good yield potential."

"Investors who purchased property in Ireland two years ago are now shifting their attention to Spain."

"Germany has some of the best and some of the worst to offer in Europe."


The search for value and yield – as well as diversification – is taking increasing numbers of mainstream investors into alternative asset classes, such as data centres and student accommodation. The latter is part of a bigger, positive shift in sentiment towards residential investment, which remarkably is judged to have better prospects than core commercial real estate for 2014.

Were it not for the resurgent residential sector, supporters of such commercial real estate staples as central city offices and logistics would have held sway. For many interviewees, logistics is still the favoured sector in 2014, largely because of its e-commerce potential.

Retail real estate, long the darling of investors, is very much towards the bottom of the shopping list for 2014. The outlook for consumer spending is still predominately gloomy and the turmoil created by online shopping carries on.

And investors’ search for core-like quality income and assets in provincial centres is steering them away from business parks and suburban offices, leaving these sectors with dismal prospects for 2014.

What did our survey respondents say?

"The retail sector needs to be reconfigured due to the rise of e-commerce and “click and collect”

"Logistics is a defensive play that will benefit from increased e-tailing and local consumption."

"There will still be a place for retail so it’s about picking the right spots."

"Weaker retail locations will become obsolete."

"We see a lot of money moving to residential."

"Residential is a high priority."

"Residential has the potential to be big."


Intriguingly, as Europe emerges from recession, the green agenda is emerging as a significant factor. This year, for the first time, Emerging Trends Europe asked the industry some pointed questions about sustainability. We received some revealing answers: three-quarters of respondents include sustainability in their business strategy.

Some of this greening is down to the push factor of increased regulation. But there is also a pull factor: firms see that sustainability makes business sense, mitigating obsolescence and attracting tenants – and capital.

What did our survey respondents say?

"Sustainability is relevant in all big developments all over Europe.”

"We wouldn’t look at an asset without looking at its energy footprint."

"You do not have a choice but to engage in sustainability, to keep the portfolio in good order."

"The future really is green"