Germany and UK most attractive EMEA countries for real estate investment

13 April 2017 5 min. read
Germany continues to be the most attractive target for real estate investment in the EMEA, boasting a stable and transparent investment environment. The UK take second spot, while London remains the regions most attractive city for investment. Investors continue to see aggressive pricing and competition as key obstacles, while largely motivated by strong yields. A faster then expected rise in interest rates is the biggest reported challenge.
Real estate as an alternative asset investment option continues to feature in the wider mix of a range of investors, from HNWI to pension funds, as bond yield remain low. In a new report from property consulting firm CBRE the current investment trends for the real estate sector in the EMEA region are considered. The report, titled ‘Investor Intention Survey 2017’, involved 1,968 respondents globally, 501 of whom are from the EMEA region.

Most attractive countries for investment in EMEA

Top EMEA investment destinations

The results again found Germany out front of the preferred destination for real estate investment in the EMEA region, at 22% of respondents, followed by the UK, at 20%. Germany features a stable geopolitical environment and a firm economic future, while the markets in both Germany and the UK have relatively high liquidity and transparency.

The Nordics have become increasingly popular in recent years, now cited by 10% of respondents as the most attractive market. The markets across the region are favoured, in part because of their good risk-profiles, while actual investment in the region stands 66% about the ten year average.

The Netherlands comes fourth on 9%, followed by Spain and Poland. The latter continues to offer investors with strong yields. Russia and the continent of Africa come last, cited by 1% of respondents as the most attractive investment opportunity in the EMEA region.

Most attractive cities for investment in EMEA

In terms of the most attractive city for investment in the EMEA region, London again (sixth year running) takes the number one spot. The city has seen its favourability slip somewhat, in part due to Brexit uncertainties. Berlin has increased its position by two, now 1.2% behind London with 15.8% of respondents indicating it as their top destination for investment. Madrid and Amsterdam take third and fourth spots respectively, at 8.4% and 7.3% respectively.

Munich, Milan and Hamburg have fallen out of the top ten, in the face of yield compression, while Stockholm and Oslo join the top ten as interest in the Nordics continues.

Biggest obstacles to acquiring assets in the EMEA

Obstacles and motivations for investment in EMEA

The research points to asset pricing being the biggest concern among EMEA investors (reported by 37.8%), with aggressive pricing buffeting investors in increasingly competitive European markets. The issue is not unique to the region however, as it is also reported by 58.5% of Americas and 35.5% of APAC investors as an issue.

The availability of assets is the second biggest concern for EMEA directed investors, noted as an issue by 35% of respondents. Availability is less of an issue in the Americas and APAC, at 18.2% and 24.4% respectively. Competition from other investors was cited by 16.2% of EMEA investors as an issue, while low market transparency, availability and/or cost of debt, currency risk, tax, transactions costs and lack of investment partners the areas of least concern.

Investor main motivations for investing in real estate

The research also explored the main motivations for investing in the real estate sector. The primary reason, according to 30.1% of respondents, is the relative attractive risk / return profile of real estate assets, particularly in a time in which government bonds and other forms of assets are returning low returns. Particularly large scale investors, pension funds, sovereign wealth funds and insurance companies are interested for this years. The second highest main reason for investor interest is the nature of the established market with high liquidity / transparency, cited by 20.8% of respondents.

Additional areas cited by respondents as the main reason for investment include strong economic fundamentals driving real value growth (15.4%), the opportunity to purchase undervalued assets (7.8%) and stable geopolitical environment (7.4%).

Investor main concerns

The research also considers the main investor concerns cited by those investing in real estate. The top most cited concern is faster than expected rises in interest rates, at 24% of respondents, followed by a global economic shock undermining occupier demand, at 21% of respondents. Property bubble comes third, cited by 14% of respondents as a concern, while 10% cite local political instability as a key concern. Areas of least concern according to the respondents are deflation (0%), higher than expected inflation (1%), and some other property market related shock (1%).