Commercial Real Estate Scenario throughout the Europe
November 8th, 2013 by Diane Moore
Anyone can be a commercial real estate investor. That’s the beauty of making a real estate investment in Europe. You can invest as long as you have the money (or other people’s money), the drive, and you work within the legal parameters. You may be flush with cash and excited to plunge into the commercial investment world, but keep a couple things in mind:
- Availability. At any one time, there are many more investors in the market than investment properties. There are a limited number of investment-grade properties available for the general public, and even less are marketed as a true listing.
- Knowledge. Make sure you do your homework by consulting with other local investors. Some deals may look good on the outside, but once you peel it back, there might not be a viable investment inside.
- Time. If you’re making the jump from owning and managing residential properties, this may be the biggest change for you. Some smaller investment transactions can be closed quickly, but many more take months, if not years, to close.
Optimism has come back to Europe’s real estate business. Industry frontrunners are more positive than any time since 2008, despite the unclear macroeconomic perspective. Equity for investment in real estate is predicted to increase, but debt is expected to contract further. Those who have the capital are focusing on possibilities in locations they know best. It is evident that micro asset management techniques are crucial to generating earnings.
The environment provides very little guarantee and definitely no quick is the winner. Europe’s commercial real estate markets are still challenging, but there are new investment possibilities too.
What about Capital and Finance?
Debt is expected to become available to those who do not require it. This will, nevertheless, create possibilities for those who have easy access to bank finance as distressed assets are now brought to the market.
A new world is being formed by two major forces. Capital is getting global in nature, moving into Western property from across the world towards the larger, properly-capitalised or properly-recognized businesses. Simultaneously, decisions about the way that funds are used will become more and more granular. Investors are looking more for value than excellent locations.
Investor is Ready to Take a Little more Risk
In spite of their willingness to take a little more risk, investors will still be wary of the southern area of Europe. However, they are prepared to drill down deeper into more steady markets to discover opportunities. Surveys reveal that markets such as Berlin and Munich have become more attractive than “non-core” places like Istanbul.
London climbs to 3rd best from 10th for the very same reason. Cities in the southern Europe like Dublin and Amsterdam stay low in rankings. However, Dublin has climbed up to 21 st place, encouraged by the possibilities of greater runs of distressed assets in the coming year.
Accepting more risk demands more rigour – and this is where people who are specialized, have detailed knowledge, and those who have a good network in regional markets will succeed. Investors are looking for off locations and trying to understand how the economies of these areas function. They also need local operators to help them in this.
In the same way, lenders are also specialising. Pan-European techniques don’t work today. Now depth and detail will matter, as banks have themselves become a little more local, trying to understand how demographics or economic climate of a region works.
Sustainability Now Has the Focus
Traders and loan providers, as they always keep one eye on re-financing risk, need to know whether an asset will be able to perform over time. The necessity for future-proofing building structures will see the green plan take a substantial step forward in 2013-2014. Nevertheless it’s not only sustainability which is changing the nature of construction. Macro trends that offer opportunities for all those who are able to understand them are emerging across all sectors.
Sustainability continues to be rising up in the corporate agenda. A survey finds that investors have started paying attention to ecological concerns. In the world of consumers, brands are figuring out the way to handle the carbon dioxide footprints and the way to supply more sustainable products – an agenda that is beginning to impact commercial real estate market. The approach to eco-friendly buildings is maturing. The market has started considering the future of the products they are creating.
E-business Becoming Prominent
E-business is inserting momentum into the logistics marketplace of Europe. Asian investment is presenting commercial real estate developers with a new type of consumer to cater for. The technologies, media and telecommunications implemented in offices are all set to change how the real estate businesses think about workspaces.
Investors can also be more relaxed with the financial picture. In the past year, businesses had been fearful to do something new as the Europe was on the verge of uncertainty. But going ahead, companies now believe that it is now essential to focus on the day-to-day business and navigate the market the best they can. Many have started believing the politicians in Europe will do the right thing and stabilization would be seen soon.
What Are the Reasons Behind this Optimism?
Reasons behind the optimism differ. Those who have the capital are hopeful of the bigger offer in 2013-14. Individuals who have asset administration expertise think that good opportunities might be coming from banking institutions or other people flipping distressed assets.
50 % of the investors believe much more equity is going to be available for ventures or re-financing as funds seek safe haven, fairly stable earning return, and yields – especially in comparison with sovereign bonds.
People Want to Deal Directly with Businesses
People want to deal directly with organizations that have niches. Even those with difficult times are more comfortable as they can work with routes that offer sustenance and provide them with tools to grind out the difficult times forward. The field is wide open up for the big listed companies. They are considered as being able to add more worth to the market. Public listed companies would be the most upbeat about their company prospects. They are all set to take full advantage of their relatively better access to debt. They are ready to benefit from the property that banking institutions will shed as they deleverage. Small firms, which once might have outbid them, cannot obtain the finance to compete.
49 % of fund managers predict improved profits and confidence forward. Though they confess that initial closings will be tough to settle, they are encouraged by ongoing capital flows into the real estate market. They also predict a bigger stream of distressed stock from banks in 2013-14.
Capital Goes Global
Capital looking for European commercial property is becoming increasingly global. The market is taking advantage of greater attention from new Far Eastern investors, purchasing cross-border the very first time.
But a lot of this capital is moving to the top and world class cities of Europe. The latest numbers confirm this fact: almost €20 billion from the €92 billion dollars of investment in Europe in the first 3 quarters of 2012 was concentrated on Central London, with an additional €8 billion dollars invested in Paris. Just €5 billion was invested in Spain, Italy and Portugal, altogether. However, the capital is also becoming more local in these important markets because it seeks security and development.
Levering the Assets
There is an expectation of greater asset sales by lenders in 2013-14, regardless of the place one sits in the market. This will bring in an increased flow of deals for those in a position to act. Property dealers are ready for additional sales in Ireland as well as the UK. and are also preparing themselves for a Spanish sell off.
Small Is Beautiful
The bulk of distressed portfolios available on the market are made up of small assets that are hard to manage, compounded with a few sexier qualities to attract buyers. But investors are discovering a market for junk assets they have purchased from banks, as micro trading markets have started to emerge in certain locations. In the U.K., local business owners view local assets much more positively compared to the average organization and are putting in a bid. They want commercial real estate in their town.
In Ireland, American private equity firms might be in the limelight, but it is also the high-net-worth Irish investors that are helping banking institutions deleverage. Dealing with advanced players that have faith in their property means that the discount applied to these local properties is going to be lower.
The Spanish Sell-Down
Will Spain be able to follow Ireland’s example? Spain’s terrible bank, Sareb, is anticipated to start selling its assets by the end of 2013. Spanish banks other than Sareb are also anticipated providing offers to the market. Investment managers also know they cannot do without Spain, and so their opportunistic capital keeps heading in.
While investors are making themselves ready for action, some believe that deal flow is going to be stunted for a long period. Sareb can make mistakes similar to NAMA; it will might purchase bad assets and pay out too much. In either way, year 2014 would be the most energetic years.
Where’s the Opportunity for European Buyers?
Opportunistic American investors are leading this game of distress in Europe. But European companies with great asset management techniques are finding a way onto the play ground: buying assets from them or placing expertise and a little money in a joint endeavor with some foreign investor.
Knowledgeable European investors are finding footing in “retail to wholesale” opportunities. They may be buying loans and property out of the bigger portfolios purchased by opportunity funds, utilizing management knowledge to increase value and earnings.
The strategy for NPL (non performing loans) buyers is to quickly sell the underlying assets. Smart guys realize that and come out with an offer just after they have bought an asset or even before it. It’s a great opportunity for investors who have funds to put to work.
Banks offering NPL finance are becoming much more competitive. Margins continue to be higher, but traders are looking for better pay back terms. Rather than demanding a complete sweep of excess earnings from portfolios to pay back the loan, some banks are now agreeing on only partial amortisation.
The life of an investor in Europe can be very rewarding, given the proper preparation. You may live off of your commercial real estate holdings for years to come, depending on the choices you’ve made. Do your homework. Don’t jump into an investment without thoroughly exploring all aspects of the purchase. Have best- and worst-case scenarios thought out for the future of your purchase.
The past 5 years in Europe were about survival. But, 2013-14 represents the beginning of the rehabilitation. For all those who have made it through, it will likely be a year of refocusing, repositioning, and remodelling. And it will be a year when the survivors will take advantage of the release of more assets to the market. According to a survey, almost eighty percent of the investors say that the crisis in the Eurozone has established more opportunities compared to the past. Profitability, business confidence and real estate purchase intentions are noticeably much better for 2013-14; just a small minority of investors foresee problems worsening.
The financial outlook continues to be unsettled and banking institutions, as this document reflects, are making a structural decrease in their industrial real estate financing. Against this type of backdrop, confidence looks paradoxical. But a number of factors describe the existing positive perspective. After facing the Darwinian struggle, they are comfortable knowing that they are rightly positioned to resist the challenging climate with all of its ongoing uncertainty.
You know that commercial real estate can be complicated but not impossible. Continue to expand your knowledge base by reading and talking to commercial real estate insiders. Remember the lessons you’ve read, and apply them in the real world. Now get out there and jump in.
Latest posts by Diane Moore (see all)
- Tips for Making your Commercial Property more Energy-Efficient - January 22, 2014
- Remodeling Investments that Will Pay You Back - January 21, 2014
- 21 Reasons to Invest in the US Commercial Property Market - January 20, 2014