Real estate markets across Europe, the Middle East and Africa received $183 billion of capital funding in 2015, according to Savills, and 63 percent of this originated from outside the region. EMEA, therefore, attracts more inward investment from overseas capital than any other global market.
Analysis undertaken by Savills shows that cross-border capital is responsible for eight of every 18 real estate transactions in the region. EMEA has proved to be significantly more attractive to international investors than other markets, which have typically seen funding for just one in every 10 deals coming from a cross-border source. North America was the biggest source of investment, spending $75 billion in EMEA in 2015, compared with domestic and Asian investors, who invested $68 billion and $24 billion, respectively.
Rasheed Hassan, head of cross-border investment at Savills, says:
“For core buyers, there are a number of capital cities and gateway cities across EMEA, such as London, Paris and the five big German cities, all of which offer an abundance of class A real estate with secure income steams. For more opportunistic buyers — in particular, American funds — there are still distressed/value-add opportunities throughout EMEA in locations such as Spain, Greece and Italy. In addition, mainland Europe is behind the United States and the United Kingdom in its recovery following the global financial crisis, which is providing NPL (non-performing loan) and large portfolio deals.”
Savills notes that additional flow is now being seen from a number of investment houses in North America that traditionally concentrated on the value-add market, but that have now raised new funds with a lower cost of capital and, as a result, are also looking at core assets throughout EMEA. The firm highlights that North American investors, in general, tend to be more highly leveraged, with average loan-to-value ratios of 64 percent, compared with Asian buyers at 53 percent and those from EMEA at 59 percent.
Rasheed continues:
“As the amount of Asian investment started to increase dramatically in EMEA, particularly from pension funds, state funds and insurance companies, there was a concern that this would create less liquidity in some of the European markets as [these investors] typically have much longer investment horizons and lower leveraged transactions than U.S./domestic investors or buy in cash. However, we have seen growing examples of these investors trading.
By comparison, U.S. investors for the largest deals are typically funds that, by design, are geared to trade and doing so is commonplace. The fund lifespan is defined with clear investment and divestment periods and the more highly-leveraged investors, who typically have shorter hold durations due to the cost of their debt, are focused on enhancing returns where possible with shorter hold periods. This has, therefore, generated a greater fluidity in the EMEA real estate market.”
Yolande Barnes, head of Savills world research, adds:
“EMEA is truly a global market, attracting significant inbound investment from far and wide, but in particular from North America. However, while transactional activity has focused largely on core prime European cities to date, we forecast that lower levels of activity will be on the cards for these locations in the next five years. Smaller cities that are already successfully harnessing the tech economy, such as Dublin and Warsaw, or second-tier cities, such as Bristol and Leeds, are among those where rental growth and investor interest should impact total returns.”
Savills notes that other potential investment opportunities in EMEA include those that are emerging as solutions to long-term demographic and macroeconomic changes. These include care homes and private healthcare clinics in affluent countries with ageing populations, such as France and Germany, and micro-apartment developments in cities experiencing rapid urbanization and an increase in single-person households, such as the United Kingdom and the Netherlands.
Financial capital may be flowing freely into Europe and across Europe’s borders, but the same is not true any more of human capital. The migrants from Africa, Asia and the Middle East keep coming but hurdles are now being put in their path. On the Greek/Macedonian border, only Syrian and Iraqi refugees are being allowed through; Afghan economic migrants are not. On Monday, attempts to break through the border were repulsed with tear-gas attacks by security forces. Mark my words, this will not end well.
Further up the European country chain toward the nirvanas of Germany, Denmark and Sweden, would-be migrants can expect razor-wire fences, daily quotas to pass through borders, temporary cessations of the Schengen open border system, increasingly hostile “we don’t want you here” domestic populations, a refusal by some E.U. countries to accept the mandatory refugee quotas laid down by the European Commission last year, and a sense that Europe as a whole really does not know how to react to this existential threat.
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Richard Fleming is editor of Institutional Real Estate Europe.
