Emerging Trends in Real Estate® Europe is a joint survey by PwC and the Urban Land Institute. Now in its sixteenth edition it provides an outlook on real estate throughout Europe for 2019 and beyond.
survey respondents from across 22 European countries
are concerned about the availability of assets
are targeting lower returns in 2019
are concerned about international political instability
Europe's Real Estate leaders remain optimistic about their business prospects in 2019, albeit a little less confident than they were a year ago, as an air of late-cycle caution settles on the industry.
The geopolitical backdrop remains a concern, with Brexit uppermost in the minds of many, though global investors are less bothered by Brexit than their European counterparts.
Emerging Trends in Real Estate® Europe 2019 shows an industry in search for secure, stable income as they question traditional investment structures and look at real estate in a much broader context.
Some 70% of survey respondents believe that achieving target returns will require a widening of the definition of traditional real estate to include real assets and related service businesses.
Investing in infrastructure need not mean traditional assets, such as railways or utilities. Rather, whole new investable asset classes are opening up to service the digital economy, including 5G infrastructure, data centres and charging points for electric, and - increasingly - autonomous vehicles, all of which provide a social return to consumers through better connectivity or the environment in terms of lowering carbon emissions.
Not all investors or property companies are set up to take a real assets approach, nor may they feel comfortable with such a strategy, as it is a different type of risk and requires more intricacy than with traditional asset classes.
“We’re going to see investments in network communications in the same way we may have looked at hard infrastructure investment in the past.”
Brexit is doubtless one reason why European political instability is second only to international political instability as the key social/political issue for the industry in 2019.
The interviews indicate that global investors are less bothered by Brexit than their European counterparts. Even so, an overwhelming 83 percent of respondents expect a divergence in economic growth between the UK and the European Union in 2019.
Whether it’s a soft, hard or no-deal Brexit, 70% of Europe’s senior property professionals believe that the UK’s ability to attract international talent will fall following 29 March 2019, which is bleak news for the UK.
For the majority, the Eurozone is seen as a safer and more fruitful investment destination than the UK in 2019, whilst others equate the risk with opportunity.
Not so long ago, the idea of promoting health and wellbeing would have been dismissed as irrelevant to the real estate industry, yet nearly half the survey respondents believe it will have a moderate impact on strategies over the coming five years. More tellingly, perhaps, 43 percent acknowledge it will have a significant impact.
As it turns out, the survey puts health and wellbeing almost on a par with such long-established influences on the industry as sustainability and energy efficiency.
There is also demand for more flexibility among occupiers, so that they can respond to the needs of their workforce. This requires more intensive asset management and investment.
“The days of buying real estate, holding it for 20 years and doing nothing, are long gone.” - Global fund manager
“We have to be ahead of the game as far as possible in thinking about the happiness of tenants. In the end, they pay the rent and we want to find the highest rent and the most loyal tenant in the long term.”
Emerging Trends in Europe 2019 ranked the real estate markets in major European cities according to their overall investment and development prospects.
With some of Europe’s major markets judged to be peaking, attention is shifting to smaller, dynamic cities; the “risking stars”.
This year’s choice for overall prospects is Lisbon, rising 10 places to number one. Interviewees cite the city’s “quality of life” and “positive” leadership. Plus, it’s seen as a late-cycle play.
Portugal’s economy is growing healthily and its capital is now an international destination for companies, investors and tourists.
The 10 European cities that are expected to fare best in 2019 are a mix of smaller newcomers, such as Lisbon and the larger, tried and tested markets. It is no surprise, for instance, that German cities still dominate the top spots for 2019.