The real estate industry is predicting an optimistic year ahead. The traditional investment and development strategies are evolving, reacting to the political, economic, social and environmental changes, resulting in plenty of activity, but a shift in focus towards alternative assets.
A recent PWC survey uncovered that there has been an increased interest in alternative assets. The same survey took place in 2015, where only 27% of respondents said they would consider investing in alternative assets. However, in this year’s results, almost 60% confirmed to be already investing – a clear demonstration of how quickly strategies are developing and portfolios diversifying.
Core, quality assets in central locations are still highly sought after, however, alternative real estate is growing in popularity with social factors having a significant impact.
Online shopping has been a real driver behind the logistics sector, resulting in massive prospects for the logistics industry, big developments in the pipeline and plenty of transactions completed already this year.
The changes in the business world have altered office requirements. The growing number of start-ups (especially in the technology sector) and the rise in flexible working have resulted in and flexible leases becoming more popular. This has also led to the restructure of traditional office blocks into co-working spaces. However, as much as this is a rising trend and seemingly growing in popularity, some respondents from the survey are worried about the longevity of this trend – an interesting viewpoint to consider.
It is no secret the retail industry has received negative press recently, however, the report uncovers some refreshing views towards the retail industry. One major European retail landlord says: “It’s really frustrating because bad news sells, but perhaps things aren’t quite as bad as we might have thought”. Another respondent said: “due to the negative sentiment to the sector, you can buy at very high yields and that’s a big opportunity. You can buy in logistics at a 4.5% yield or retail at a 6.5% yield”. Could the retail industry be a lucrative investment?
The large student population has resulted in student accommodation becoming a safe haven for investors, with 32% of respondents rating the sector as having the best prospects. Co-living is also an interesting sector for investors with the concept growing in demand with the rise of the millennial generation. However, some investors are uncertain and don’t see this sector as a sustainable investment as people mature and have families.
The report ranked European cities due to their overall development and investment prospects. Lisbon has taken the top spot following the countries growing economy and transformation into an international destination for companies, investors and tourists. German cities dominate most of the remaining top 10 with Frankfurt looking particularly promising. The report predicts the city will benefit from Brexit due to the presence of the European Central Bank, strong transport links and relatively low cost of living compared with London and Paris.
In addition to alternative assets, up-coming cities and social trends; environmental factors are increasing in importance. The growing awareness of the impact the built environment is having is placing increasing pressure on the sustainability of developments and existing assets. No longer can investors just focus on profit, environmental factors need to be considered for the longevity of the venture.
It is interesting to see the structural change and revamp of portfolios. It is becoming clear that to mitigate risk, a diverse portfolio is needed and an increasing number of changing factors need to be considered.