Everyone operating in the property market should be well read on trends in the industry, not least to bring ‘added value’ to meetings with developers and other clients. There is no better source of information than the ‘Emerging Trends in Real Estate: Europe’, a joint publication by The Urban Land Institute (ULI) and PwC. The forecast for 2019 points to some surprising trends, and given that the report is based on the opinions of 885 real estate professionals, investors, fund managers, financiers and developers, it deserves attention. Here are some of the points that caught my eye.
As a measure of the disruption in retailing caused by online competition, in a table rating the prospects for 27 asset classes; city centre shopping centres, retail parks and out-of-town shopping centres, hold the bottom three places respectively. Conversely, the shift to online retailing sees logistics rated at number two. Co-living, ie. residential development with smaller unit sizes but enhanced community facilities such as meeting spaces, gyms, cinemas and concierges, is rated as having the best prospects for both investment and development. This type of development is rare here (our student housing is probably closest) – but watch out for it becoming a feature in our cities.
The report points to another shift in the market in that, whilst there is agreement that European markets are at, or close to, the top of the cycle, instead of investors settling for secondary assets to try and get value, they are moving into alternative markets. Thus we see sectors such as retirement/assisted living, serviced offices, data centres, student housing, private rented residential, serviced apartments, housebuilding and social housing making up the top 10 rated sectors. The emphasis on residential development is interesting, and reflects a shortage of housing in cities across Europe.
In the office sector, the effect of co-working cannot be ignored. This is the renting of desk spaces or larger flexible spaces on short leases, with communal facilities. This sub-sector accounted for 15pc of all office take-up in London last year, and is growing. The report says that co-working is changing the way occupiers use space and will lead to reduced space requirements over the long-term. Co-working is changing the nature of corporates’ relationships with landlords, is getting into the agents’ space, and is referred to as “the Amazon of the office market”. The office market is undergoing a structural change, similar to that experienced in retailing. Property agents take note!
The report predicts an increasing pace of urbanisation across the continent. In a ranking of the overall prospects for investment and development in 31 cities, Dublin is third. Lisbon and Berlin are rated above Dublin, but London, where Brexit issues are weighing heavily on the market, is ranked at 29. UK provincial cities like Manchester and Birmingham are also predicted to perform relatively poorly.
The report points out that London’s position is paradoxical in that, despite Europe’s biggest and most liquid real estate market, being ranked relatively poorly for last year, money continued to flow in. This was largely driven by Asian buyers seeking large assets and exploiting weaker Sterling. Investment spending in the year to the end of Q3 2018, was €20bn in London, and the next highest city is Paris at €12bn.
Another slight surprise is that Europe’s property industry leaders rate “transport connectivity” (road, rail and airports) as the most important factor in choosing where to develop and invest. Availability of assets, forecast returns, and market size and liquidity, are next. I suspect the seventh place ranking of digital connectivity is down to an assumption that it’s is a given, at this stage.
The full report is available at europe.uli.org and every property professional should be reading it. I suggest asking your graduates to present a summary of it to your firm, some lunchtime.