CANNES (14 March 2017) – While unprecedented geo-political and economic concerns will place the real estate industry firmly in a risk-off environment, real estate capital inflows are expected to remain strong in 2017, according to Emerging Trends in Real Estate® – The Global Outlook for 2017, an annual forecast of global real estate investor sentiment published jointly by PwC and the Urban Land Institute (ULI).
According to the global business leaders interviewed, these concerns will spur a “flight to quality” by the majority of institutional investors. The resulting low growth environment and risk-off attitude will situate real estate as one of the most attractive asset classes, providing a relatively high proportion of income return.
The report notes that geo-political events such as the U.S. election, Brexit, and uncertainty surrounding forthcoming elections in France, Germany, and the Netherlands have created a diverse array of risks. Among the key concerns in 2017 for real estate industry leaders in Asia Pacific, Europe, and the U.S. and Canada are exchange rate volatility, land cost and availability, and taxes and regulations.
In addition, some of the industry leaders interviewed for the report expressed concerns about shifts in markets and the talent pool brought on by a global drift back to domestic agendas.
Opinion is divided on where best to deploy the abundance of capital allocated to real estate. Asia Pacific boasted a 31% share of cross-border capital in 2016, the highest level in the current cycle. The report suggests that this trend may continue as investors eye emerging markets. The report also predicts continued strong overseas investment in the U.S., which is seen as a market with little uncertainty. Whilst investors are generally showing signs of caution towards Europe as a whole, many still see opportunities in specific asset classes and specific European cities such as Berlin and London.
The report also notes that the line between real estate and infrastructure is becoming ever more blurred. On a global level, competition for core assets is driving up prices and forcing investors to either lower return expectations or consider alternative sectors. This in part explains the increased interest in ‘real assets’. Major investment managers and pension plans have created real asset groups, which remove the distinctions between asset classes such as real estate, infrastructure, farmland, and timber. The report predicts a continued expansion of new, alternative asset classes with specific operational risk and income profiles.
“Even in times of geopolitical turmoil, real estate largely remains a safe haven, as we are clearly seeing now,” said ULI Europe CEO Lisette van Doorn. “However, megatrends such as urbanisation, demographic and social changes, and resource scarcity are ushering in a new era for real estate. From the growth of investible ’real asset’ opportunities to changing customer needs, industry leaders must pay attention to these rapid shifts in order to profit from the opportunities that come with them.”
“Industry leaders expressed concerns around geopolitical instability, social concerns and industry disruption, but were generally very positive about the flows of capital into real estate for 2017” said PwC’s Real Estate Director Gareth Lewis. “We think that this apparent dislocation is largely explained by real estate’s position as a maturing asset class in which many investors are still under-allocated and the ongoing search for yield, which is also driving the growing interest in real assets.”
To download the report, please visit europe.uli.org/etglobal2017.