Industry & Business

Photo credit: Hans-Peter Bock hpbock@avaapgh.de

Dublin is the fourth most attractive city in Europe for real estate investment, according to an analysis by PwC and the Urban Land Institute (ULI) released on Thursday. Dublin saw €4 billion of real estate activity in the 12 months before September 2016, putting it behind Berlin, Hamburg and Frankfurt, and ahead of Munich and Copenhagen.

Dublin slipped one place from 2015 when it came third, however the report says that Dublin is still seen to be an overall beneficiary of Brexit. One private equity investor predicted that while the city will likely not pick up financial services headquarters from the UK, it will pick up back-office functions, which could still have a big effect on the market. Continued economic growth, foreign direct investment, and strong demand in the housing market also play an important role in Dublin’s prospects for 2017.

PwC Ireland Real Estate Leader Joanne Kelly said: “With an economy performing well over the average EU GDP level, a young fast-growing population, the most business-friendly tax regime in Europe and many multinationals based here, Dublin remains a highly regarded location for real estate development and investment. Brexit is also expected to benefit Dublin as a potential alternative to London, with investors believing that there will be opportunities provided by financial services operations looking to set up here in order to continue to access the Single Market.”

“Demand in the Dublin residential rental sector is significant. This demand is partly due to the lack of supply which has driven rents up to an all-time high, but also due to an expanding population and an economy that is growing. Ireland needs to be careful that the shortage of accommodation does not negatively impact future foreign direct investment. Government and the industry need to continue to work together to plan for the future housing needs of our people.”

The analysis, based on the opinions of almost 800 internationally renowned real estate professionals in Europe, including investors, developers, lenders, agents and consultants, found that, despite the many political and economic uncertainties clouding Europe’s future, the real estate industry is upbeat about most of its major markets. But Brexit will likely reshape the European real estate map.

A survey taken as part of the study found that 89 percent of respondents listed political instability as their top concern for 2017. Forthcoming elections in France, Germany and the Netherlands, as well as concerns about migration and terrorism, add to this uncertain outlook. Forty five percent of respondents believe that the migration crisis will get worse in the coming year, and interviewees reported terrorism as a key threat to the security of public spaces and private buildings. This international political instability is not expected to dissipate quickly; 62 percent of survey respondents expect political uncertainty in Europe to worsen over the next three years.

Despite much uncertainty and change in Europe, however, respondents were only slightly less confident about their business prospects than they were last year. Just under half expect no change to confidence, profitability or headcount. Furthermore, the report finds that capital flows will remain strong and investors will continue to value European real estate for yield in comparison to the attractive risk / return expectations in other asset classes.

Although investors continue to see value in real estate across many parts of Europe, return expectations are being scaled down, and the importance of active asset management and investment in real estate ‘alternatives’ as a means to access income is being talked up.

Joanne Kelly added: “Given the timing of this report, in a period in which Europe’s real estate industry participants are coming to terms with the result of the UK’s referendum vote to exit the EU, it was inevitable that Brexit would be a focus point for the industry’s uncertain view of the future.”

“But what is clear after taking the pulse of the real estate industry’s leaders, is that below the surface, there are complex and significant influences at play beyond today’s geopolitical issues. These are changes which are altering society and our industry’s view of the future role of the built environment.”

“Technological disruption and the growing relevance of the sharing economy is shifting the centre of gravity from financial asset to product, or more broadly ‘real estate as a service’.”

Sector-wise, the report notes that urbanisation and changing consumer habits have paved the way for alternatives such as hotels, student housing, and assisted living facilities. 8 out of the top 10 sectors for investment prospects in 2017 relate to residential real estate — leaving traditional offices and shopping centres to be classed among the riskiest assets for 2017.

London fell to 27th place in the table from number 11 in 2016. London is still Europe’s primary magnet for global capital, attracting €31 billion of capital inflows in the 12 months to end September 2016 the Emerging Trends Europe report found. Ninety percent of almost 800 real estate professionals in Europe predict that UK investment and property values will fall over the next 12 months as a result of the UK referendum vote to leave the European Union. But despite the uncertainty over London and the UK other regional cities, most interviewees have faith in its medium- to long-term future as a key global city with frequent reference to the opportunities presented by the recent devaluation in sterling.

The report found that Germany is widely regarded as the new haven for capital  in the current  climate in which many real estate investors are clearly willing to sacrifice some yield for lower risk. The fallout from the Brexit vote gives an extra boost to the already-strong German real estate market with Berlin, Hamburg, Frankfurt and Munich taking top spots for investment and development prospects. With considerable political and economic uncertainty in Europe, many real estate investors are willing to sacrifice some yield in return for lower risk. In this risk-off environment, the stability of German cities becomes even more attractive.