Savills: European investment: opportunistic vs. core funds but who will buy in the middle?
Monday 2 April 2012
According to Savills' latest European investment bulletin, core funds remain acquisitive for the right product and the weakness of European currencies are attracting opportunistic investors including North Americans, but the firm questions which parties will fill the middle ground?
Tristam Larder, Director of Savills cross border investment team, says: “Opportunity funds can’t base their business models off future yield compression, they need active asset management angles. Core funds, on the other hand, are looking for prime assets or good quality assets with long leases in B+ locations. There is a middle ground of secondary assets with no immediate asset management angle which is languishing between the two types of buyer. Four out of five of these assets are currently purchased by local buyers but with funding issues those priced over €40 million sit in a trouble zone.”
Savills suggests that aside from core areas of UK, France and Germany that will continue to be the main focus for 2012, CEE and peripheral countries including Poland are attracting interest as investors see longer term opportunities. It also states that acquisitions from Asian investors are slowly increasing and Middle Eastern investors decreasing - more than €4 billion was invested by these groups in 2011 of which 81% was in the UK but German and CEE markets are expected to be the focus for these parties in 2012.
Lydia Brissy, Director of Savills European research, says: “Rising capital flows and interest from risk embracing investors combined with distressed opportunities offered by peripheral countries and banks may well be the start of a market turnaround.”
Savills suggests 2012 is set to see a 4% increase in real estate investment volumes across Europe following a total of €101 billion invested in 2011 of which 80% was transacted in UK, France and Germany. The research notes that defensive strategies have steered investors towards retail assets notably shopping centers, but the bulk of demand continues to target offices, representing 47% of total commercial turnover in Europe during 2011.
Savills records average prime office CBD yields have moved down by six basis points over the past year to 5.76%, in line with long term averages of 5.78%, and average prime European shopping center yields declined by 19 basis points over the past 12 months to 6.6%. In contrast, the gap between industrial properties and that of retail and office assets has widened with yields rising from 7.52% to 7.63%.
Brissy continues: “The growing appetite for risk in 2012 will be demonstrated by the increasing number of forward funding deals, fuelled by the rising number of distressed sales and bank disposals. We anticipate this could revive the industrial market, which has become increasingly attractive, and see peripheral countries where yields continue to rise such as Ireland and Spain back in the spotlight.”