Cushman & Wakefield: EMEA property investment outlook 2015 (EU)

Investment volumes in EMEA are forecast to increase 20% next year to €247 bln from an estimated €206 bln this year. Demand is already strong but with fund allocations still increasing, occupational markets stirring in many cities and finance markets growing more competitive, markets will be even more liquid in 2015.
What is more, short-term concerns such as stock market volatility, fears of deflation and limited economic growth could all point to yet stronger demand for property due to its relative yield and risk profile. Retail and logistics will win further market share but quality property in all sectors will be in demand and a notable increase in the appetite for development is to be expected, focusing initially on core office markets in the region.
Alongside loan and asset sales and deleveraging, profit taking and some new development should help to boost the range of investment opportunities available in the market. Interest in a broader range of markets and sectors should also continue and while some investors are being driven to this by necessity just to find opportunities, others are actively seeking to embrace more risk in pursuit of higher returns. Hence, while demand at the core end of the market will remain very significant, an increased focus on core-plus and value add opportunities is to be expected
Southern markets, notably Spain, led the upturn this year with volumes up an estimated 55%. This will continue in 2015, with forecast growth of 45-50%. Other areas more over-looked in 2014 should see better demand however, with the Nordics up a forecast 25% after a 7% increase this year thanks to their strong appeal as markets of low structural risk but also good relative growth prospects. CEE markets are also expected to bounce back, rising 30-35% after a 15-20% fall this year. Russia and some non-EU eastern markets may be held back by events in the Ukraine as well as commodity prices and general emerging market uncertainty. However, Central Europe is a different and more promising short-term prospect and other eastern markets within the EU may see stronger interest where the right stock is available. In Western markets meanwhile, we currently forecast growth of 15%, modestly down on the 20% increase seen this year reflecting the fact that these markets have already seen a fuller recovery.
Ongoing uncertainty, geopolitical risks and deflation will hold back growth but a slow if hesitant recovery is nonetheless continuing and 2015 should in general be a better year than 2014. For one thing, domestic demand in most of Europe should be boosted by improving purchasing power thanks to lower inflation and firmer labour markets. At the same time, the fall in the euro and lower input prices should help production. The credit cycle also appears to have bottomed, with increasing bank lending and money supply pointing to a firming in conditions.
While low and volatile economic growth will keep businesses focused on affordability, demand for efficient space will start to push rents up and lower commodity prices may make this process easier if build costs ease. Led by Western markets, prime rents are expected to grow 2-3% in 2015 with good growth for dominant high streets and shopping centers although offices may lead over the cycle against a backdrop of limited new supply. Better than historic industrial performance is forecast as ecommerce raises the role of logistics but a risk of secondary market underperformance will persist in all sectors.
David Hutchings, Head of EMEA Investment Strategy at Cushman & Wakefield: “The risks in today’s market are hard to judge – some in fact are hardly visible at present and others will bubble up, particularly perhaps in the political sphere this year. As a result, it’s all about the lease for many investors and they need to make sure their strategy is as future-proofed as it can be – and that means focussing on property that meets occupiers needs and is flexible to change. Only the best property can be well placed to ride out a period of inflation or disinflation.
Source: Cushman & Wakefield