Despite political uncertainty and rising construction costs, investors are drawing a significant amount of comfort from the central banks’ decision to maintain or cut interest rates – a notable change in direction from last year’s report and probably the biggest factor supporting the general levels of optimism that emerged. With interest rates set to stay lower for longer and bond yields in many European countries in negative territory, real estate income will retain its broad appeal to investors. Equity and debt are also expected to remain plentiful for most real estate sectors, the notable exception likely being retail which is still struggling in the face of online competition.
A number of real estate sectors undergoing significant structural change, many interviewees regard investing in housing and hotels as a sound, defensive strategy at this point in the cycle, supported by long-term urbanization and demographic trends. As the Emerging Trends Europe survey has highlighted over the past few years, these sectors are at the forefront of the industry’s transformation into becoming a service industry. There is a recognition that the industry sector that funds, builds and operates the spaces in which we live, work and play, is starting to embrace complexity and respond to its role as part of society’s infrastructure. The industry believes that the enhanced complexity and operational risk that comes from embracing the ultimate end-user and their evolving demands is one worth taking to achieve target returns. The latest survey and interviews suggest a blurring of sector boundaries as part of a bigger investment picture in which mixed-use assets, improved transport connectivity, greater use of technology and smart mobility solutions are all seen as integral to the economic growth of Europe’s cities and the investment potential of its real estate.