How have investor interests changed in the last 12 months?

Leo Civelli, Chairman REAG Europe of Duff & Phelps Group, talks about how demographics and consumer habits are affecting investor interest and confidence. Mr Civelli is in charge of business development of real estate and other Group’s services and of coordinating the activities of REAG in Europe. He has over 20 years of experience in overall management of real estate operations.

 

How are investor interests changing?

It is a must for investors to change their focus. You know, there was much interest in the retail market, and then much interest in offices, and now as the market is changing investors are starting to look at logistics and alternative residential. With the yield compression that is going down - as much as 2.5-3% in some cities for prime location office, it’s clear that investors much actively adapt to the market or start losing money. 

Demographics is just one example of how the investor interests are forced to change. There are a lot of older people across Europe, so not only is there money to be made in senior living, but also in hospitality projects that support easier mobility. 

The newer generation may also drive the need for investment in serviced apartments, a trend which we have seen in Italy primarily but its spreading, both across Europe and even in parts of the US. The millennials, due to enhanced mobility, high house prices and the option of flexibility often opt for this. It’s a completely different building; it’s the WeWork of residential! It’s coliving with customer services and other amenities so, definitely something young people are interested in. So it seems to me that all asset classes are in some way adopting aspects of hospitality into their projects in order to add value and attract tenants. Is this something that investors are looking at? Yes, absolutely. I think this trend has been realised in London and there’s been much investment into these office and retail projects that employ some form of amenity. I think this is beginning to happen in Paris and parts of Italy as well. 

  

Speaking of London, how are opportunistic investors navigating the market in the wake of the ending cycle and political unrest?

Opportunistic investment is over now, I think. They’ll have to go to Eastern Europe now if they want something. Maybe in Rome or Athens as well, but in general the volume of opportunistic investment is low. There’s no liquidity, the banks aren’t lending anymore. There’s no way. 

I think it’ll be like this for a while as well, because there are a lot of non-performing loans which obviously affects the real estate market. The banks are in a fragile place, and they can’t help fund a project just for an investor to need equity and pull out hundreds of millions. 

 

GRI Club is hosting specialised and tailored discussions on subsectors including light industrial, logistics, offices and residential for the most senior players in the real estate. GRI Light Industrial & Logistics Europe 2019 takes place on 6-7 November in Amsterdam, and GRI Offices 2019 and GRI Residential Europe 2019 take place on 19-20 and 26-27 in London, respectively.

Article by Matt Harris