Investor appetite for risk is set to keep rising throughout 2014 after helping to push deal volumes in the European property market to a five-year high last year, according M&G Real Estate.
The fund manager’s latest market outlook predicts that this year will be at least as active as 2013, when transaction volumes topped €80bn (£66bn), as investors continue to warm to risk and the economic recovery in the Eurozone picks up.
On top of this, an expensive bond market and the prospect of interest rate rises impacting bond returns means investors are likely to continue to put a greater proportion of their capital into property.
Despite ongoing challenges in the Eurozone, the one per cent growth in real GDP projected for 2014 will help lay strong foundations for a return to “more normal rates of economic growth in the medium term,” M&G’s head of property research Richard Gwilliam said.
“A ‘risk on’ investment sentiment does not mean ‘brain off’. We are not going to see significant rental growth across the board: it will be focused in the North primarily in Germany and the Nordics. Furthermore, we are also predicting further yield compression owing to increased investor appetite,” he said.
M&G predicts that the highest rates of rental growth over the next five years will come from prime high street shops, driven in part by luxury brands, with only moderate rental growth in the European office sector.
However, it singles out logistics as the best sector to invest in and the one predicted to deliver the strongest prime total return this year. The main logistics hubs of Germany, the Nordics and the Netherlands set to benefit the most thanks to stronger occupier and investment demand while Poland will also benefit thanks to its proximity to Germany.
“With occupational fundamentals starting to improve and with a lot of investment capital waiting in the wings to be deployed, 2014 looks set to be a healthy year for the continental European real estate markets,” M&G said.