European rates to stay ‘benign’

EXPO REAL 2018: Short and long-term European rates are expected to be benign for the foreseeable future, limiting any negative impact on property markets, according to new findings by Colliers International. The latest Capital Flows report, which launched at Expo Real in Munich, has predicted that this will happen despite news of the recent bond sell-off in the US, which could signal an end to the low interest rate environment that has dominated the current property cycle. During 2018 strong occupier expansion, low vacancy rates and limited development pipelines have supported a gradual shift in market conditions to favour landlords, resulting in rental growth and stability across the majority of European markets. Supporting property values Colliers noted that these have supported property values and returns, despite yields being at their cyclical peak – a situation likely to continue into 2019. Richard Divall, head of EMEA cross-border capital markets at Colliers, said: “Despite the typical late-market property cycle conditions, we expect 2018 will be another strong year for real estate investment in Europe. “There are a number of broader macro concerns impacting global investor decision making, including rate rises in the US, global trade disputes, low growth in Europe and the fear of a ‘hard Brexit’ or a ‘no deal’. “Although it’s more apparent that investors are more cautious about quality of income, genuine rental growth and active asset management initiatives, the willingness to target real estate and diversify global portfolios continues.” The report’s main findings ■ The UK, France and Germany are leading on investment activity, with France up 30% compared with 2017. UK volumes remain static. ■ Germany is trading above the five-year average, and provisional results point to an increase on Q3 2017, despite some pricing challenges and a lack of quality product resulting from limited development activity between 2013-15. ■ The Netherlands, Benelux, Finland, Ireland and Poland have seen increased investor attention with improving fundamentals as investors chase yield and returns and diversify their portfolios. ■ Asian markets have continued to witness expansionary investment activity in 2018 year-to-date, far outstripping activity in the US. ■ A more balanced picture is reported between cross-border and domestic capital, with each accounting for 50% of activity in the year to date. ■ Investment into residential assets now counts for 16% of all activity in the past 18 months, compared with 6% 10 years ago. The global picture On a global scale, investment transactions depict a continuation of the trend witnessed at the end of 2017. According to the research, the EMEA region has seen investment volumes drop by 10% year on year, although this represents an improvement on its weaker Q1 results, which were almost 30% down. Investment volumes in the US remain similar to the previous year. “We expect EMEA investment volumes to be lower than 2017 with current pricing, lack of product and political uncertainty causing some investors to stand on the sidelines in the short term,” said Divall. On the other hand, investment volumes for AsiaPac are forecast to reach $808bn (£615bn) before the end of 2018, up by 13% year on year. Divall added: “Closer to home in Europe, the UK, Germany and France continue to lead on activity overall since 2017, matching their five-year trading average. “The Netherlands, Benelux, Finland, Ireland and Poland are seeing increased attention, with the late property cycle improving fundamentals as investors chase yield and returns, which is increasingly difficult to find in the Tier 1 markets in UK, Germany and France.” To send feedback, e-mail pui-guan.man@egi.co.uk or tweet @PuiGuanM or @estatesgazette