Heritage Group representatives recently returned from this year’s MIPIM conference held in Cannes. As the world’s leading real estate event, MIPIM gathers the most influential players from all areas of the global property industry and once again it provided interesting insight into this dynamic sector. Heritage Director Gerry Warwick shares his views on the most important trends and challenges facing real estate investment in 2017.
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- Geopolitical and economic uncertainty – Europe is in for a year of political uncertainty which is likely to have an impact on the real estate sector. Not least, the French presidential elections are expected to slow market activity during the first half of 2017. However, real estate capital inflows should remain strong in 2017, according to Emerging Trends in Real Estate - The Global Outlook for 2017, published by PwC and the Urban Land Institute. One real estate director pointed out that the apparent dislocation between geopolitical concerns and positive sentiment towards property is largely due to its position as a maturing asset class in which many investors remain underweight.
- Brexit: who benefits? – Germany’s real estate sector seems most likely to benefit from the UK’s decision to leave the EU. Speaking at the event, Chris Bell, Knight Frank’s managing director for Europe highlighted the fact that Germany in particular is widely regarded as a safe haven for capital in continental Europe and in a risk adverse climate, many investors are prepared to sacrifice some yield for lower risk. In 2016, the total volume of real estate investment transactions reached €52.6bn, of which €19.6bn took place over the last quarter post-Brexit vote alone, according to BNP Paribas Real Estate Germany.
- London retains its crown as investors’ top European city – The economic outlook for Europe is generally good and experts pointed out that there has been continued strong demand from international and domestic investors alike for prime core investments. Given the falling yields in Paris, Milan and other markets, London looks good value again. Published at MIPIM, 2017 CBRE’s survey stated that 17% of respondents cited London as their preferred destination for real estate investment, in spite of the economic uncertainty surrounding Brexit.
- But UK government policy slows London residential construction – Although London looks set to continue to attract foreign investment, certain real estate sectors face challenges. Residential Land has commissioned research from Oxford Economics into the impact of governmental policy on the residential market but already it is apparent that sales in central London are down by a third. As a result high-volume housebuilders have reacted by cutting back on projects and central London residential construction starts are down by 50%.
- China and the rest of the world – It is estimated that 300 million Chinese citizens will join the ranks of the middle class within the next few years, spending more on consumer goods and travel and opting for higher levels of hospitality. To meet this higher consumption, domestic companies such as Alibaba are acquiring logistics centres around the world to compete with the likes of Amazon. This has seen a spike in real estate projects outside China developed specifically with the Chinese market in mind – a trend that is likely to continue.