As inflation and debt costs in Europe continue to rise, investors in real estate are having to look harder for the returns they need, according to Savills. To help with this, the international real estate advisor has identified a variety of asset classes in 14 local markets that still offer 5%+ yields.
They include: retail/retail parks in Belgium, the Czech Republic, France, Italy, Poland, Spain and the UK; prime offices in inner suburbs/secondary locations in Belgium, the Czech Republic and multi-tenanted offices in greater Copenhagen, Denmark, Ireland, France, Germany, the Netherlands, the fringe of Oslo in Norway, Poland outside central Warsaw, Porto in Portugal, Romania, Spain and Sweden, as well as the South East of the UK.
Logistics investors could look to b-grade assets in the Czech Republic, value-add in northern and southern France, core+/value-add in the Netherlands, core+ in Poland, core prime assets in Romania and secondary Spanish cities with more than 200,000 inhabitants and light industrial in prime markets.
Those looking to alternative sectors could target hotels in secondary locations in the Netherlands, purpose-built student accommodation (PBSA) schemes in tier 2 and tier 3 cities and care homes/developments in Spain and the UK.
Tristam Larder, Head of European Capital Markets at Savills, says: “Since the GFC the European real estate markets have profited from a decade of low inflation, falling debt costs, tightening yields and excellent fundamentals in a lot of the core markets with good supply demand dynamics, which has stoked rental growth and thereby ever growing capital values.
“However, the speed at which this 'Goldilocks' period has unravelled over the last few months across Europe has come as a surprise to some. Those investors who are able to step back from the noise can see that debt costs and yields are still low within a historical context, the fundamentals are still good in many of the markets, but it is the speed of change which has caused volatility, confusion and dislocation in the market. While short term investors may fear dislocation and the risk it presents to their returns, for longer term investors the current dislocation can present excellent buying opportunities as valuations revert to fundamentals.”
Lydia Brissy, Director, European Research at Savills says: “In addition to quality, investors will be seeking value, regardless of asset type for the foreseeable future. The Nordic region and southern European countries, such as Portugal, Spain and Italy, will likely benefit from their competitive pricing advantage.”
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