The Wall of Capital
Insight Summit — CEEQA@Mipim, 11th March 2015
What does it mean for the New Europe property markets?
Immediately following the New Europe Breakfast reception, an audience of 150 gathered to hear a keynote presentation by the JLL European Capital Markets team leaders Matthew Richards and Robert Stassen and a panel discussion involving some of the New Europe property sector’s most successful investors, developers, financiers and consultants, on how a recent huge increase in international real estate investment into Europe is impacting on the CEE markets.
The presentation highlighted how a ‘wall of capital’ is being driven primarily by a recent rebalancing and reallocation of a significant portion of pension fund capital from US and Asian markets out of fixed income and equities into alternative asset classes, including commercial real estate, due in part to the availability of big data on real estate markets and the greater transparency and fiduciary reportability that provides. Capital from insurance companies and endowment funds has also joined the fray, where in 2007 insurance companies were net sellers of real estate, now they’re net buyers. And it’s likely to increase.
The same big data effect, in stimulating a diversification away from concentration on a few key traditional investment city locations and towards developing markets as well as new segments like healthcare, is seeing an equal proportion of investment from outside Europe — around 40% of all investment in 2014 — coming into the CEE markets, primarily through private equity funds and capital partnering, looking for outsized returns partly to justify the cost of overseas investment as well as to rebalance their portfolio risk. Additionally, the effect of this flow of international capital is likely to stimulate further German investment, already the region’s largest internal European investor, into the core Central Europe markets.
With Europe also benefiting from the attractions of a broadly diversified market place, a low interest rate environment, a weak euro and potential stimulation of occupier demand by Quantitative Easing, coupled with the radical effects of e-retailing on demand for distribution facilities, the segments of regional city BPO faclities and distribution hubs appear to be the natural outlets for this wall of money. In addition the CEE markets offer growth driven in large part by infrastructure improvements as well as general convergence, coupled with locally experienced partners as well as improving legal framework and transparency driving cross border and local liquidity — in some eyes becoming almost as core as Germany.
Against a backdrop of investing in growth and narrowing of multi-juristictional challenges in the region, cross-border portfolios supported by corss-border finance has proven to be the way in for scale transactions in industrial but also other segments. While over-supply in areas like regional retail and the Warsaw Office market are sowing some risk into the region, partly through urban planning short-comings, this could be mitigated by a slowing of the property cycle with the new money looking more for inflation protected income in ‘evergreen’ situations rather than fixed term, fast turnover capital gains, creating the space for defending lease terminations and investing in improved perforamnce asssets over time. And while the attractions of the region might be tempered by some degree of political risk there is no firm evidence yet of the Russian situtuation having much impact on investor sentiment in the region.
Listen to the full audio file:
The insight summit builds on CEEQA’s previous work on regional capital flows and investment trends in European and New Europe commercial real estate as well as the unparalleled market impact of its Insight Summit series over the past decade.
CEEQA@Mipim is organised in partnership with Mipim as the focal point for the CEE and SEE property markets at the largest annual global real estate fair. CEEQA is the leading regional market insight platform and main annual industry awards for commercial real estate across 18 countries in New Europe.
Both events were free access for Mapic registered delegates.
SPEAKERS & PANELISTS
KEY NOTE: Matthew Richards, Head of International Capital Group Europe, JLL: Robert Stassen, Head of European Capital Markets Research, JLL.
PANELISTS: Dieter Knittel, Head of International Real Estate Finance for Central and Eastern Europe, PBB Deutsche Pfandbriefbank; Hadley Dean, (MRICS) Chief Executive Officer, EPP; Ian Worboys, Global CEO, P3 Logistic Parks: Kate Allen, Property Correspondent, FINANCIAL TIMES; Otis Spencer, President, Peakside Polonia Management; Pawel Debowski, Partner, Chairman Real Estate Europe, Dentons: Robert Martin, Partner, Head of Investments, Europa Capital: Robert Stassen, Head of European Capital Markets Research, JLL
MODERATOR: Richard Hallward, Managing Director, CEEQA.