The global real estate market will see a resurgence of deal activity over the next 12 months, with Western European markets attracting the lion’s share of investor interest, according to the findings of the 2014 KPMG Real Estate Invest Survey.
Bullish attitude is back as investors target opportunistic real estate assets to maximise returns
81% of global investors surveyed by KPMG for the MIPIM RE-Invest Summit 2014 said they intend to invest in real estate this year. 42% said they would adopt an opportunistic strategy and target distressed or undervalued assets, indicating that a more bullish spirit is returning to pockets of the market.
Stronger economic stability, better debt availability and an improving capital market have created the ideal conditions for investors to regain their confidence in the real estate market and make bold decisions to secure better returns.
Many are already adopting more opportunistic investment strategies, hunting out undervalued or distressed assets in order to capitalise on them as the market undergoes a revival.
It is an ideal time for investors to strike out and diversify their portfolio with real estate assets, and reduce their exposure to traditional portfolios comprising of only bonds and equities.
Spain, Italy Portugal and Ireland predicted as investment hot spots for 2015
81% of investors surveyed said Western Europe offered the best investment opportunities today. However, as the economy recovers KPMG expects this focus to broaden out to markets in Southern Europe and CEE such as Spain, Italy, Portugal and Poland in late 2014 and 2015.
As the economy picks up global investors will become bolder and look further afield for the best opportunities. Some investors are already feeling increasingly priced out of the core markets like the UK, and recognise there may be a better chance of getting access to the right opportunities in the strengthening markets of Southern Europe.
Funding gap could emerge if traditional debt providers remain reluctant to fund perceived “riskier” transactions
This shift in strategy to chase riskier, higher return, investments is also reflected in the type of asset investors are pursuing. While office and retail developments remain hot property, investors are targeting traditionally less popular assets, like car parks, in order to seek out more potential.
Whilst overall debt conditions are stabilising, lack of availability to support a sudden surge in transaction levels could constrain future market activity. Uncertainty, with regards to future availability of debt, is apparent with respondents split as to whether debt availability for European real estate investments will contract further during 2014 and 2015.
Such concerns are further demonstrated by only 26% of respondents believing that new entrants to the European debt markets, such as insurance companies and PE houses, will be able to replace the traditional debt providers, removing any potential funding gap. Of those active in the market, 49% of investors believe that sovereign wealth funds and global pension funds will dominate the European real estate markets over the next five years.
Investors are concerned that a sudden uptick in activity could leave a shortfall in the debt available to fund these transactions. Traditional lenders that we speak to in the UK remain reluctant to finance deals in locations which are perceived to be higher risk, so there could be a mismatch of demand and supply of debt as investor appetite for Southern Europe grows.