Housing and logistics continue to offer opportunities for investors throughout 2020 and beyond
- Logistics, housing and alternatives continue to offer opportunities
- Cities such as Berlin, Milan, Madrid and London perform well, underpinned by solid demand and disciplined development
- The European Central Bank (ECB) taking a more accommodative path
The latest research from one of the world’s largest real estate investment managers Nuveen Real Estate predicts that the European residential market, and in particular Purpose-Built Student Accommodation (PBSA), will continue to grow in popularity with global investors throughout 2020. The notable supply and demand imbalance within this sector is only likely to expand substantially, the firm believes, given constraints on affordability and changing demographics, coupled with the rise in global student mobility and a more discerning domestic occupier base.
Meanwhile, the firm believes that the logistics sector, considered by many to be the real estate industry’s ‘darling’, will further spread into formerly secondary markets, such as Sevilla, Genoa, Erfurt, Toulouse or Linz, thanks to the proliferation of e-commerce from large cities to towns. Many investors are increasing their allocations to logistics, targeting up to 20% of their portfolio; however, construction of space is significant but appropriate, which has led to a queue of buyers trying to enter the market and is therefore supporting values.
The research highlights the ongoing diversification of the retail sector and investors with a long-term approach should look to best-in-class retail destinations, for example designer outlet centres and mixed-use retail centres such as Xanadu, Madrid, or locations where they can repurpose existing retail stock. That said, negative sentiment surrounding the retail market was still prevalent throughout 2019, with transaction volumes falling around 33% in the year to Q3 2019, thanks in part to the penetration and growth of online retail.
Leasing transactions continued to perform well across a number of centres, including Berlin, Milan, Madrid and London City, underpinned by solid demand and disciplined development. However, unsurprisingly, as the Eurozone economy slowed markedly over 2019, so too did leasing transactions in some areas by an average of c. 30% by Q3 2019. Looking ahead, Nuveen Real Estate predicts that the areas where demand has exceeded supply by the greatest margin in recent years, and where there are strong rates of speculative space under construction, can expect modest growth, including Frankfurt and Dublin.
Stefan Wundrak, Head of European Research, comments: “Only high conviction investments can deliver returns above what is a low baseline return for 2020. However, with the market moving up the risk curve, tail risk minimisation becomes key. Long periods of rising markets commonly lead to overconfidence and misguided conviction, but herd effects and trend chasing are equally tempting mistakes to be avoided in 2020."
“Again, we believe logistics, housing and alternatives will present the most compelling prospects over the course of 2020, but location should also play a major role in the decision-making process.”
Read the full 2020 outlook.
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