Emerging Trends in Real Estate® Europe

Executive Summary

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. 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 important, debt too is now starting to be available for these assets.

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.

And intriguingly, as Europe pulls out of 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. In real estate 2.0, success will be not only about choosing the right assets and managing them well, but also about knowing what drives the market – demographics, regulation, changing technology and changing lifestyles. As one of this year’s interviewees puts it, “How you get value is not about just bricks and mortar but the function of the real estate.”