Investor demand to diversify across European assets in 2016

After achieving a record investment volume of €235bn in 2015, strengthening confidence in the occupational market  is predicted to bring further appeal to the European commercial real estate market in 2016, according to a report on Themes for European Property in 2016  from  international real estate advisor Savills. The total investment volume in 2015 was up 17% on 2014, and above the pre- recession peak. According to Marcus Lemli, Head of Investment for Savills Europe, however, "Investment volumes will be spread more evenly across the continent in 2016, as investors actively seek to diversify their portfolios.”

Savills notes that around 25% of the total invested in European commercial real estate in 2015 can be attributed to the purchase of assets beyond the traditional office and retail sector. The appetite for non-traditional assets has grown over the past few years due to investors seeking secondary assets in non-core locations to avoid fierce competition for highly priced traditional assets. "What is principally fueling investor interest however are the inevitable demographic changes across the continent," comments Lydia Brissy, Director of European Research at Savills. "The ageing population in Europe and the profile and affluence level of ageing 'baby boomers' means that there is a need for more and  improved healthcare facilities."  Investing in private clinics and care homes is a trend that has already emerged especially in markets with above average affluence levels, such as the UK, Germany or France, as investors are taking advantage of the opportunity to secure long term income streams.

Another ramification of inevitable demographic changes is extensive urbanization, and the demand for affordable ‘micro-living’, especially in Europe’s megacities. As a result, institutional investment in residential property, such as student housing, has continued to attract healthy levels of investment over the past 12 months, particularly in cities with large student communities in the UK, The Netherlands and Germany. “We expect this trend to continue to expand in megacities such as London, Paris and Madrid, where younger generations are being priced out of the housing market, but also in growing innovation hubs such as Dublin, Barcelona, Amsterdam and  Stockholm,”  says Lydia Brissy. 
 
Numerous retail portfolios came to the market in 2015, some pan-European, and Savills expects this trend to continue in 2016 as several retailers need to sell up in order to  invest back into their core business. The rise of e-commerce grew by 22% in 2015 and further innovation in the retail sector will create a growing demand for warehouse and distribution networks in all large urban areas across Europe. “There will be increased investor interest in the logistics industry in order to support this burgeoning online retail sector, with the US likely to show particular appetite for a new breed of warehouses,” comments Marcus Lemli,.

The European commercial property market will continue to attract increasing numbers of overseas investors as the market has already benefitted from a positive spread between bond and property yields.  "We anticipate that the recent US interest hike will have a limited impact on the Eurozone and we forecast a more modest growth in turnover of around 3-5% in 2016, " says Lemli.

Download the full report here.