The decision by the UK to leave the European Union weight heavily on the minds of many in the European real estate industry with many seeing it as a source of gloom but others seeing opportunity.
Political instability is rated by 89% of respondents in the latest Emerging Trends Europe analysis report from the Urban Land Institute in London and PwC as being their top concern and there has been a general post Brexit slump in sentiment towards UK property markets.
The report also says that investors see value in commercial real estate across many parts of Europe but 92% of the 800 industry leaders who took part in the research say UK values and investment will fall in 2017.
But the real estate industry is not bracing itself for a 2009 style plunge and nearly two thirds think the fall will be moderate. However, London faces particularly strong Brexit headwinds, potentially losing EU focused business and part of its highly skilled workforce to rival cities.
The impact on the occupier market is another major worry and the research found that the immediate reaction is to curtail investment with respondents saying they are having to dial back on leasing and rental assumptions and it is suggested that going forward London occupiers won’t pay pre-Brexit rents.
The report says that fears about lower economic growth, softening occupational demand and losing financial services to continental Europe are reinforcing the concerns investors have about offices and retail in the UK but this is also boosting the popularity of alternatives like private rented residential investment.
Indeed, London found itself in 27th place, down from 11th, but the city is regarded as remaining attractive for global capital, with €31 billion in capital flowing in over the 12 months, the most active market in Europe.
The report also points out that some investors are watching the UK closely for buying opportunities, in anticipation of a rebound in 2018 if the Brexit negotiations go well. And despite all the uncertainty over London, most respondents have faith in its medium to long term future as a key global city and financial centre.
The research found that real estate investors are clearly willing to sacrifice some yield for lower risk and Germany is widely regarded as the new haven for capital investment and the five leading cities for overall investment and development prospects in 2017 are named as Berlin, Hamburg, Frankfurt, Dublin and Munich.
Looking ahead, the report says that there are changes that are altering society and the real estate industry’s view of the future role of the built environment and the property cycle as it affects supply, occupation, ownership and investment.
‘The European real estate industry is experiencing a seismic shift in its centre of gravity, from real estate as a financial asset, to a product and more significantly, to real estate as a service,’ it adds.
