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EY Real Estate Asset Investment trend indicator 2014

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The EY Real Estate Asset Investment trend indicator shows increasing interest for Belgian real estate as sound investment in 2014. More findings included.

The EY Real Estate Asset Investment trend indicator shows increasing interest for Belgian real estate as sound investment in 2014. More findings included.

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    EY Real Estate Asset Investment trend indicator 2014 EY Real Estate Asset Investment trend indicator 2014 Presentation Transcript

    • Real Estate Assets Investment Trend Indicator Belgium 2014
    • Agenda Real Estate Assets Investment Trend Indicator Belgium 2014 About the trend indicator 2014 Market outlook for Belgium 2014 Investment strategy for Belgium 2014 European outlook for 2014 Page 2
    • Key findings 2014 for Belgium Attractiveness Capital markets Transaction market Price trends Sellers, buyers Impediments A high proportion of respondents (80%) see Belgium as an attractive or very attractive location to invest in real estate. Alternative debt providers as insurance companies, pension funds or debt funds will become more important in 2014. Basel III-effects on classic bank real estate loans will probably gain momentum. Prices in prime locations tend to increase for all types of use. Decreasing prices in peripheral areas. Seller groups: international funds, corporates and opportunity/PE funds. Buyer groups: opportunity/PE funds and private/family offices. A price mismatch between buyers and sellers is viewed as the major barrier for deal flows. Use types Preferred regions Page 3 Strongest investment focus on retail and residential properties. The preferred cities for investment are Brussels (office and residential) and Namur (retail).
    • Our trend indicator covers a broad range of investor groups in Belgium Trend indicator: real estate investment market ► ► The different types of investor groups surveyed: The trend indicator is based on a survey of 20 companies that have been active in the Belgian property market in recent years. ► ► The survey focuses on two main areas: Banks Closed-ended real estate funds ► ► Real estate stock corporations/REITs ► Outlook on the strategies that Belgian investors will pursue in the coming year. ► Institutional investors ► Opportunity/private equity funds ► Insurance companies ► Housing companies ► ► Assessment of the Belgian real estate investment market for the year to come. Other investment vehicles In addition to Belgium, this survey was conducted simultaneously in 14 other European countries. Background ► ► Page 4 EY has conducted this survey in Belgium since 2012. 20 investors reported on their expectations for the coming year. Objectives ► ► Assessment of the Belgian real estate investment market for the year to come. Outlook on the strategies that Belgian investors will pursue in the coming year. Method ► ► The trend indicator is based on a survey conducted by Valid Research in November and December 2013. The feedback from the interviews forms the results of the real estate trend indicator.
    • The survey was also conducted in other European countries European trend indicator: real estate investment market ► Participants from 15 European countries took part in the survey. ► All surveys took place in November and December 2013. ► Feedback was gathered from more than 500 companies operating in the real estate market in the surveyed countries. ► Those countries that have participated are listed below. ► ► ► ► ► Page 5 Participating countries Austria Belgium France Germany Italy ► ► ► ► ► Luxembourg The Netherlands Poland Russia Spain ► ► ► ► ► Sweden Switzerland Turkey Ukraine United Kingdom
    • A majority sees Belgium as an attractive investment location… Key messages ► ► The majority of the respondents (80%) view Belgium as an attractive or very attractive location to invest in real estate for 2014. Last year the confidence in the Belgian market was even stronger. 95% stated that Belgium was attractive or very attractive. Belgium’s attractiveness as a location for real estate investments 55% 25% 20% Very attractive Attractive Original question – “How do you rate Belgium’s overall attractiveness as a location for real estate investments in 2014?“ Page 6 Less attractive
    • … particularly compared with other European countries Key messages ► Compared with other European countries, again the majority of respondents rate Belgium as an attractive or very attractive investment location (79%, 2013: 85%). Belgium’s attractiveness as a location for real estate investments compared with other European countries 58% 21% Very attractive 21% Attractive Less attractive Original question – “How do you rate Belgium’s attractiveness as a location for real estate investments in 2014 compared with other European countries?” Page 7
    • Influence of the capital markets in 2014… Key messages ► ► Alternative sources such as insurance companies, pension funds or debt funds acting as debt providers will become more important in Belgium in 2014 (90% agree, 2013: 50%). Interest rates for real estate loans will probably rise (89% agree). ► The capital markets seems to be ready for real estate IPOs and equity increases (85% agree, 2013: 60%). ► Fear of high inflation also drives demand for real estate (74% agree, 2013: 80%). "Alternative debt providers (insurance "Alternative debt providers (insurance companies, pension and debt funds, mezzanine companies, pension and debt funds, mezzanine providers) will increasingly provide financing for real providers) will increasingly provide… estate investments" 60% "Interest rates for real estate loans will rise in 2014" 30% 32% "Interest rates for real estate loans will rise in 2014" 57% 11% "The capital market in 2014 will be attractive "The capital market in 2014 will be attractive for real for real estate IPOs and equity capital estate IPOs and equity capital increases" 30% 55% 15% increases" "Due toto lower loan-to-value ratios, demand for "Due lower loan-to-value ratios, demand mezzanine financing will increase 2014" for mezzanine financing will increase in in 2014" "Fear of high inflation in the medium term will "Fear of high inflation in the medium term will drive drive investors towards the real estate investors towards the real estate market" market" 33% 45% 11% Strongly agree 63% Agree 22% 21% Disagree Original question – “Which of the following statements about Belgium’s real estate financial/ capital market in 2014 do you agree with?” Page 8 10% 5% Strongly disagree
    • … on real estate investment activity Key messages ► Basel III will have consequences for the mortgage business but nevertheless the classic bank real estate loans are gaining momentum (72%, 2013: 55%). ► The CMBS market could revive in 2014 (60% agree, 2013: 55%). ► Belgian real estate investors anticipate an increasing supply of real estate (55%, 2013: 50%). ► The Eurozone debt crisis will have considerably less impact on the Belgian real estate market compared to last year (2014: 50%, 2013: 80%). "Basel III regulation will make real estate "Basel III regulation will make real estate loans less loans for attractive for banks and lead to attractiveless banks and lead to greater restraint in greater restraint in the the mortgage business" mortgage business" 11% 61% "The commercial mortgage backed securities "The commercial mortgage-backed securities market 7% will revive in 2014" market will revive in 2014" "Supply in the realin the real estate market will "Supply estate market will increase in 2014 (maturity of increase in 2014 structured debt, disposal of (maturity of structured nonperforming loans, liquidation of open-ended debt, disposal of non-performing… funds)" "The euro-zone sovereign debt crisis will "The Eurozone sovereign debt crisis will increase increase investments by European investors in investments by European investors in the Belgian real estate the XX real estate markets" markets" "There will be an increase inin consolidationreal an increase consolidation of of "There will estate companies real estate companies in 2014" in 2014" 22% 53% 15% 5% 33% 40% Strongly agree 50% 22% Agree 45% Disagree Only a minority (44%, 2013: 65%) believes that Belgium will face increasing consolidations (M&A activity) – “Which of Original questionthis year.the following statements about Belgium’s real estate financial/capital market in 2014 do you agree with?” ► Page 9 7% 45% 45% 22% 6% 11% Strongly disagree
    • The Belgian real estate transaction market (1/2) Key messages ► ► ► Green building standards will (90%, 2013: 75%) even play an increasing role for existing properties. More portfolio deals are foreseen in the commercial real estate sector (85% agree, 2013: 55%). Transaction volume is expected to increase (83%, 2013: 65%). ► Increased investment activity by international real estate investors seems to be likely (63%, 2013: 55%). 60% 30% 10% investment properties" "There be more commercial real estate portfolio "There will will be more commercial real estate deals in 2014 to 2013" portfolio deals in 2014 compared than in 2013" 10% “Overall, transaction volume in 2014 will “Overall, the transaction volume in 2014 will exceed exceed the level the level seen in 2013" seen in 2013" "The "The average size of realdeals will increase in average size of real estate estate deals will 2014” increase in 2014” "Investment activity by foreign real estate "Investment activity by foreign real estate investors in Belgium will increase compared to 2013" investors in XX will increase compared with 2013" 75% 22% 15% 61% 10% 55% 16% 11% 6% 35% 47% 32% 5% The average deal size is likely to increase in 2014 (65%, 2013: 55%). ► "Green-building standards will play a more "Greenimportant role with respectmore important building standards will play a to existing role with regard to existing investment properties" Strongly agree Agree Disagree Original question – “Which of the following statements about Belgium’s real estate transaction market in 2014 do you agree with?” Page 10 Strongly disagree
    • The Belgian real estate transaction market (2/2) Key messages ► ► ► ► The majority of respondents expects a revival of more risky investments (56% agree, 2013: 45%). Transparency of information on the Belgian market could obviously be improved since only about half of the respondents (52%) are satisfied with the current situation. It is uncertain whether AIFM will lead to an increasing consolidation in the real estate funds industry (50% agree, 2013: 55%) Speculative project developments are not widely anticipated (only 25% agree, 2013: 40%). "The share of value-add and opportunistic "The share of value-add and opportunistic investments 6% investments will increase in 2014" 2014" will increase in "The quantity and quality of information Belgian "The quantity and quality of information on theon the XX real estate transaction marketis sufficient for real estate transaction market is sufficient for investmentinvestment appraisal purposes" appraisal purposes" "The introduction of the Directive will lead to "The introduction of the AIFM AIFM Directive will lead to increasing consolidation in the real increasing consolidation in the real estate funds industry" estate funds industry" "Speculative project developments will return in 2014" 50% 21% 8% "Speculative project developments will return in 2014" 5% 33% 31% 16% 42% Strongly agree 60% Agree Disagree Original question – “Which of the following statements about Belgium’s real estate transaction market in 2014 do you agree with?” Page 11 32% 33% 20% 11% 17% 15% Strongly disagree
    • Price trend expectations vary greatly depending on location and type of use (1/3) Key messages ► ► ► Office Retail Opinions concerning prices of office buildings in prime locations vary: one third of the respondents expects either increasing (33%), stable (34%) or decreasing prices (33%). Offices in secondary locations (72%) and peripheral areas (80%) are expected to decrease in price. The majority expects retail properties to decrease in price in prime locations (60%) as well as in secondary locations (69%) and peripheral areas (86%). 86% 80% 72% 69% 60% 40% 33% 34% 33% 31% 21% 20% 14% 7% 0% Increase Prime locations 0% 0% No change Secondary locations Decrease Increase Peripheral areas At the same time, there is a significant share of respondents anticipating increasing prices for retail properties in prime locations “How do Original question –(40%). you expect purchase prices in Belgium to develop in 2014 based on the type of use and location?” ► Page 12 0% No change Decrease
    • Price trend expectations vary greatly depending on location and type of use (2/3) Key messages ► ► ► Residential Hotel 100% Residential properties are expected to decrease to a significant extent in prime locations (50%), secondary locations (73%) and peripheral areas (100%). At the same time, half of the respondents anticipate at least stable (25%) or increasing prices (25%) for residential properties in prime locations. Regarding hotel buildings, decreasing prices in all locations seem almost sure (100%). 100% 100% 100% 73% 50% 25% 27% 25% 0% 0% Increase Prime locations 0% No change Secondary locations 0% 0% 0% Decrease 0% 0% 0% Increase No change Peripheral areas Original question – “How do you expect purchase prices in Belgium to develop in 2014 based on the type of use and location?” Page 13 Decrease
    • Page 14
    • Price trend expectations vary greatly depending on location and type of use (3/3) Key messages ► ► Industrial 100% The vast majority of respondents anticipate a decreasing price level for industrial buildings in all locations. 83% 66% Secondary locations are expected to suffer least with one third of the respondents anticipating stable (27%) or increasing prices (7%) here. 27% 17% 7% 0% 0% Increase Prime locations 0% No change Secondary locations Decrease Peripheral areas Original question – “How do you expect purchase prices in Belgium to develop in 2014 based on the type of use and location?” Page 15
    • Which seller groups will be the most active in 2014? Seller groups Key messages ► ► International funds (85%, 2013: 75%), corporates (85%, 2013: 75%) and opportunity/PE funds (85%, 2013: 80%) are expected to be the most active seller groups in 2014. In contrast to last year, banks form the only group that will be cautious according to the respondents (only 40% expect banks to play an active role, 2013: 75%). Seller groups Other international funds Corporates (non-property) 25% 15% Opportunity/PE funds Open-ended funds (real estate) Banks 33% 21% 45% 15% 22% 60% 45% 25% 25% 30% 67% 11% 33% 52% 40% Very active Original question – “How active do you think the following seller groups will be in the Belgian real estate market in 2014?” Page 16 16% 68% REOC/REITs Closed-ended funds (real estate) 15% 52% 11% Insurance companies 15% 70% 32% Residential real estate companies Public sector 60% 37% 60% Moderately active Cautios
    • Which buyer groups will be the most active in 2014? Key messages ► ► Opportunity/PE funds (84%, 2013: 65%) and family offices (83%, 2013: 65%) are expected to be among the most active buyer groups in 2014. Again, in clear contrast to last year, banks are seen as cautious players in 2014 (only 25% see an active role, 2013: 80%). Buyer groups Opportunity/PE funds 11% 73% Private/ family office 33% Insurance companies 50% 40% Residential real estate companies 15% Banks 25% 55% 30% 49% 20% 38% 75% Very active Original question – ”How active do you think the following buyer groups will be in the Belgian real estate market in 2014?” Page 17 22% 60% 13% 5% 20% 56% 15% Closed-ended funds (real estate) 20% 65% 22% Open-ended funds (real estate) 20% 60% 15% Sovereign wealth funds 17% 40% 20% Other international funds REOC/REITs 16% Moderately active Cautios
    • Which will be the greatest impediments to deal flows in 2014? Key messages ► ► ► A price mismatch between buyers and sellers is viewed as the major barrier for deal flows in 2014 (75%, 2013: 75%), no change to last year. The level of equity required by debt providers is another big hurdle (65%, 2013: 70%). Transaction impediments Price mismatch between buyers and sellers Level of equity required Limited availability of senior debt funding Limited availability of junior debt funding 20% 55% 25% 40% 30% 30% 21% 20% 30% 5% 5% 5% 37% 37% 35% 5% The limited availability of debt funding remains an impediment, though not as much as last year: ► senior debt funding (60%, 2013: 80%) ► junior debt funding (58%, 2013: 70%) Strongly agree Agree Original question – “Do you agree or disagree that the following will be impediments to Belgium's deal flow in 2014?” Page 18 Disagree Strongly disagree
    • Bank actions to deal with distressed loans Key messages ► Selling distressed loans seems to be the most common way to deal with them (88%). ► An increase in debt-for-equityswaps is expected (72%, 2013: 55%). ► ► Enforcements will continue to play a certain role with regard to distressed loans, too (57%, 2013: 65%). The extension of the repayment period has become less popular compared to last year (42%, 2013: 65%). Approaches to dealing with distressed loans Sale of loans 71% Increase in debt-for-equity swaps 6% 6% 72% Increased enforcement 14% Increase in consensual restructuring deals 15% 28% 43% 40% Increase in replacement of real estate asset managers Extend repayment period 5% 36% 21% 7% 35% 42% Strongly agree Original question – “Which actions do you expect banks to take regarding distressed loans in Belgium?“ Page 19 17% 10% 42% 21% Agree 37% Disagree 11% 21% Strongly disagree
    • The following types of use will be popular with investors in 2014 Key messages ► Retail properties will have the highest focus for investors (22% strong, 2013: 25%) or at least a moderate one (22%, 2013: 30%). ► Strong or moderate investment focus Office real estate has lost even more significance compared to last year (34% strong and moderate, 2013: 50%). ► Interest in residential properties has not changed significantly (45% strong and moderate, 2013: 40%). 28% 22% 22% 17% 17% 17% 6% 6% Strong Moderate Office Retail Residential Other Original question – “Compared to 2013, what kind of focus do you intend to give to the following real estate use types in your investment strategy for 2014?“ Page 20
    • The following types of use will not be as popular with investors in 2014 Key messages ► Low or no investment focus 88% It seems that many Belgian investors do not have a clear focus on a special type of use. 44% 38% 39% 28% 17% 11% 0% Low No focus Office Retail Residential Other Original question – “Compared to 2013, what kind of focus do you intend to give to the following real estate use types in your investment strategy for 2014?“ Page 21
    • Brussels preferred place for offices, small retail focus on Namur Key messages ► Brussels apparently is the most attractive city for office investments (30%, 2013:35%). Other Belgian cities attract a lower demand for offices. Among those, Ghent is in the lead with 10% (2013: 10%). ► Altogether, the differences in retail location demand is not spread apart very much. Namur has the highest retail focus with 15%, 2013: 25%). Office and retail focus 30% 0% 0% 0% 5% 10% 15% 5% 0% 0% 5% 5% Office Brussels Namur 5% 5% 10% 0% Retail Liège Leuven Antwerp Ghent Mons Other Original question – “Which primary locations in Belgium will you be focusing your investments on in 2014?“ Page 22
    • Brussels, Liege, Ghent, Antwerp most sought after for residential real estate Key messages ► Residential and no focus 100% For residential investments, several cities are attractive: Brussels (35%, 2013:5%), Liege (20%, 2013: 25%), Ghent (20%, 2013: 30%) and Antwerp (15%, 2013: 20%). 90% 80% 75% 80% 75% 65% 35% 35% 20% 5% 15% 5% 20% 5% 0% Residential Brussels Namur No focus Liège Leuven Antwerp Ghent Mons Other Original question – “Which primary locations in Belgium will you be focusing your investments on in 2014?“ Page 23
    • Page 24
    • Most attractive exit options for real estate investments in 2014 Key messages ► The direct sale of single assets is anticipated to be the most favourable exit option in 2014 (39%). ► Planned exit options In the year before, trade sales had already gained significant importance as an exit channel. 39% 39% 11% 11% 11% 6% 0% Direct sale - Single asset Direct sale - Portfolio Closed-ended funds No exit Public real estate funds REOC/REIT (IPO) Original question – “What will be the most attractive exit options for your real estate investments in 2014? (Multiple answers possible)” Page 25 Other
    • Impact of the digital world on real estate Key messages ► ► Impact of the digital world on demand for space According to the respondents, different impacts for the individual types of use will occur due to the ongoing digitalization of the world. The office sector will face a decreasing impact concerning space demand (61%), residential real estate will face no changes (63%) and retail real estate shows a mixed trend. 63% 61% 47% 33% 29% 34% 33% 28% 24% 21% 16% 11% Increase No change Decrease Office Original question – “What impact will the digital world have on space demand for the following property types?” Page 26 Retail Residential Industrial
    • Impact of the digital world on real estate Key messages ► ► The most obvious impact is expected with regard to online suppliers replacing local stores in weak locations (83%). On the other hand, e-commercesuppliers could emerge as additional tenants for retail space (67%). Impact of the digital world on demand for space "Online will replace over-the-counter retail "Online supplierssuppliers will replace over-thecounter retail stores in weak locations" stores in weak locations" 28% "E-Commerce suppliers will emerge as tenants for "E-Commerce suppliers will appear as tenants retail space" for retail space" 67% 17% 33% "Brokers will lose market share for renting/ "Brokers will lose market share for renting/selling selling residential real estate due to Internet residential real estate due to Internet listing services" 22% 44% 28% 6% listing services" "Home office working is out-dated and staff "Home office working is out-dated and staff will move back to the workplace" will move back to the workplace" 18% Strongly agree Original question – “What impact will the digital world have on space demand?” Page 27 55% 47% Agree 35% Disagree Strongly disagree
    • Outlook for Belgium (1/2) Attractiveness ► The majority of the respondents (80%) view Belgium as an attractive or very attractive location to invest in real estate for 2014. Compared with other European countries, again the majority of respondents rate Belgium as an attractive or very attractive investment location (79%, 2013: 85%). Real estate financial/capital market Purchase price expectations ► Opinions concerning prices of office buildings in prime locations vary: one third of the respondents expects either increasing (33%), stable (34%) or decreasing prices (33%). ► The majority expects retail properties to decrease in price in prime locations (60%) as well as in secondary locations (69%) and peripheral areas (86%). ► Residential properties are expected to decrease to a significant extent in prime locations (50%), secondary locations (73%) and peripheral areas (100%). ► ► Alternative sources such as insurance companies, pension funds or debt funds acting as debt providers will become more important in Belgium in 2014 (90% agree, 2013: 50%). Interest rates for real estate loans will probably Seller/buyer groups rise (89% agree). ► International funds (85%, 2013: 75%), corporates (85%, 2013: 75%) and opportunity/PE funds (85%, 2013: Real estate transaction market 80%) are expected to be the most active seller ► More portfolio deals are foreseen in the groups in 2014. commercial real estate sector ► Opportunity/PE funds (84%, 2013: 65%) and family (85% agree, 2013: 55%). offices (83%, 2013: 65%) are expected to be among the ► Transaction volume is expected to increase most active buyer groups in 2014. (83%, 2013: 65%). ► Page 28
    • Outlook for Belgium (2/2) Greatest deal impediments ► A price mismatch between buyers and sellers is viewed as the major barrier for deal flows in 2014 (75%, 2013: 75%), no change to last year. Preferred regions ► Brussels apparently is the most attractive city for office investments (30%, 2013:35%). Other Belgian cities attract a lower demand for offices. Among those, Ghent is in the lead with 10% (2013: 10%). ► Altogether, the differences in retail location demand is not spread apart very much. Namur has the highest retail focus with 15%, 2013: 25%). Bank actions to handle distressed loans ► Selling distressed loans seems to be the most common way to deal with them (88%). Real estate use types ► Retail properties will have the highest focus for investors (22% strong, 2013: 25%) or at least a moderate one (22%, 2013: 30%). ► Office real estate has lost even more significance compared to last year (34% strong and moderate, 2013: 50%). ► Interest in residential properties has not changed significantly (45% strong and moderate, 2013: 40%). For residential investments, several cities are attractive: Brussels (35%, 2013:5%), Liege (20%, 2013: 25%), Ghent (20%, 2013: 30%) and Antwerp (15%, 2013: 20%). Planned exit options ► The direct sale of single assets is anticipated to be the most favourable exit option in 2014 (39%). Impact of the digital world ► ► ► Page 29 The most obvious impact is expected with regard to online suppliers replacing local stores in weak locations (83%). On the other hand, e-commerce-suppliers could emerge as additional tenants for retail space (67%).
    • Real Estate Assets Investment Trend Indicator – Europe 2014 Page 30
    • Key findings for Europe Attractiveness Transaction volume Transaction market Capital markets Capital markets Prices and focus A clear majority in each of the countries surveyed think that their market will be attractive to real estate investors in 2014. Cross-border investments are set to drive an increase in transaction volume. More investors are set to target riskier assets as the market improves but the supply of core assets remains low. Eurozone crisis not main driver for real estate investments anymore. As banks limit their exposure to real estate, investors are set to turn to alternative sources of finance. Retail prices set to strengthen, especially in markets hit hardest by the downturn. Sellers, buyers E-commerce trends Page 31 PE funds set to be among the most active investors across Europe in 2014. Brokers and stores alike are braced for renewed pressure from e-commerce.
    • Market attractiveness continues to improve across Europe Key messages ► ► ► ► A clear majority in each of the countries surveyed think that their market will be attractive to real estate investors in 2014. The positive change in sentiment compared with last year is particularly striking in the countries hit hardest by the Eurozone crisis – Spain and Italy. In comparison with other European countries, Germany and the UK are seen as most attractive by respondents. In 14 out of the 15 countries surveyed, more than two-thirds rate their real estate markets as attractive compared with other European markets. Attractiveness of your market 33% 67% 4% 60% 5% Poland 32% 67% 1% Germany 12% 58% 16% 35% 18% 35% 20% 20% 33% 34% 39% 40% Very attractive Belgium 54% 57% 44% 45% Attractive 13% Netherlands 9% Ukraine 17% 15% France 35% 30% 21% 33% 40% 44% 41% 69% Less attractive Original question: “How do you rate the countries’ overall attractiveness as a location for real estate investments in 2014? / How do you rate the country’s overall attractiveness as a location for real estate investments in 2014, compared with other locations in Europe?" Page 32 10% 58% 57% 27% 13% 18% 35% 21% 16% 13% 35% 35% 10% 10% 40% 55% Italy 3% 74% 47% 25% 10% 56% 16% Turkey 35% 55% 41% Switzerland 2% 61% 47% 45% 45% 29% Luxembourg 35% 2% 63% Spain 49% 47% 20% Russia 30% 15% 39% 35% Austria 34% 50% 59% Sweden 30% 60% 35% UK 36% 65% 6% In comparison with other countries 32% 18%
    • Transaction volume expected to exceed 2013 level Key messages ► ► ► ► Transaction volume is set to increase in 2014 for the second straight year, driven largely by cross-border investments. In almost half of the countries, more than threequarters of interviewees believe that volume will rise in their country. Spain and Italy are predicted to show the biggest improvements compared with last year. Majorities in all countries agree that cross-border activity will increase in 2014, Transaction volume 13% 74% 13% 16% 24% UK 64% 13% 23% Netherlands 58% 11% 71% 10% 70% 28% 50% 55% 33% 41% 47% 50% Turkey 31% 3% Austria Rather disagree 21% 6% 10% 25% 47% 59% 10% 9% 5% 48% 22% 38% 60% 15% Switzerland 32% 75% France 5% 10% 63% Russia 15% 45% Rather agree 47% 52% Poland 41% 55% 48% 16% 10% 26% 35% Agree 15% 4% 11% 42% Sweden 7% 33% 81% 16% Italy 70% 30% 4% Germany 22% 27% 3% 3% 13% 57% Ukraine 77% 27% 60% 10% Belgium 22% 23% 20% Spain 26% 61% 19% 3% Luxembourg 63% 2% 11% 6% Cross-border activity 43% 25% 42% 57% 50% 50% 5% 28% 41% 3% 30% 10% Disagree Original question – “Do you agree with the following statement: Overall, transaction volume in 2014 will exceed the level seen in 2013. / Investment activity by international real estate investors will increase compared with 2013.” Page 33 In some cases no answers were provided by the respondents. This is not shown in the graph. Thus, the total might deviate from 100%.
    • Riskier investment targets on the rise Key messages ► ► As markets improve and the supply of core assets remains low, investors are expected to take more risks. Investors also anticipate a rise in speculative project developments in selected markets, especially where core products are often unable to deliver sufficient returns. Opportunistic investments 10% 64% 10% 11% 66% 15% 56% UK 22% Germany 25% 21% 70% 29% 15% 8% 46% 56% Agree Rather agree 57% 5% 10% 48% 5% 8% 6% Belgium 5% Luxembourg 6% Rather disagree Austria 48% 5% 55% 40% 25% 48% 45% 41% 20% 4% 20% 48% 60% 56% 22% 4% 37% 45% Italy 3% 38% 42% 10% 41% 39% 63% Switzerland 15% 3% 56% 8% 31% 20% 40% 10% 50% 5% 67% 8% 57% 33% Turkey 7% 52% 13% Poland 21% 60% 30% 38% Ukraine 50% 15% 11% 5% 71% 29% 5% 56% Russia 79% 25% Netherlands 37% France 18% 63% 1% 18% Sweden 20% 78% 3% 13% 5% Spain 26% 70% 11% Speculative project developments 15% 25% 75% Disagree Original question – “Do you agree with the following statement: The share of value-add and opportunistic investments will increase in 2014. / Speculative project developments will return in 2014.” Page 34 In some cases no answers were provided by the respondents. This is not shown in the graph. Thus, the total might deviate from 100%. 3% 13% 3%
    • Inflation overtakes the Eurozone crisis as the main investment driver Key messages ► ► ► Most European countries no longer view the Eurozone sovereign debt crisis as the main driver for real estate investments. In just four countries – Germany, Austria, Sweden and the UK – more than two-thirds of respondents expect the debt crisis to push real estate investments in 2014. Concerns about the impact of inflation have decreased compared with last year’s survey. Perceptions of the Eurozone crisis 7% 33% 60% 3% 16% 2% 6% 29% 6% 59% 4% 15% 15% 5% UK 48% 40% 65% 73% 6% Turkey 15% 60% 20% 5% 15% Spain 5% 47% Italy 40% 11% 8% 30% 35% 23% Belgium 11% 12% 15% 32% 29% 20% 19% 10% 36% 10% 62% France 41% 40% 13% 8% 45% 48% 45% 13% Luxembourg 45% 39% 11% 65% 7% 49% 38% 68% 6% 6% 45% 50% 3% 14% 52% 22% Sweden 57% 40% 5% Austria 19% 71% 27% 37% Germany 62% 29% Fear of inflation Poland 4% Switzerland Netherlands Russia Ukraine 3% 37% 63% 43% 43% 39% 20% 63% 57% Fear of high inflation in the medium term will drive investors towards the real estate market." Page 35 3% 40% 27% 7% 43% 3% 68% 29% 47% 50% However, majorities in most European countries believe that fear about future inflation will Strongly Agree Disagree Strongly Disagree Agree drive investors toward real Original question: “Do you agree with the following statement: The Eurozone sovereign debt crisis will drive investments by European investors in the real estate investments. estate markets. / ► 5% 57% 40% 3% 21% 3%
    • Fund liquidation, disposal of NPLs and refinancing requirements set to drive real estate supply Importance of green-building Key messages standards ► ► Most European countries expect supply to increase in 2014, due to the maturity of structured debt, the disposal of nonperforming loans (NPLs) and the liquidation of open-ended funds. Switzerland and Austria are the only countries in which fewer than half of investors expect an increase in real estate supply. Real estate supply outlook Russia 90% UK 20% 63% Luxembourg Turkey 14% 30% 49% 11% 31% 53% 15% 34% 46% Ukraine Spain 24% 60% 14% Poland 24% 69% 10% Germany 24% 62% 7% Italy France 17% 76% Sweden Netherlands 10% 35% 58% 5% 52% 10% Belgium 39% 38% 46% 15% 37% 40% Switzerland 5% 6% 28% Strongly Agree 55% 63% Agree 2% 4% 3% 5% 7% 45% 30% Austria 6% Disagree 10% 3% Strongly Disagree Original question – “Do you agree with the following statement: Supply in the real estate market will increase in 2014 (maturity of structured debt, disposal of non-performing loans, liquidation of open-ended funds)." Page 36 In some cases no answers were provided by the respondents. This is not shown in the graph. Thus, the total might deviate from 100%.
    • Commercial mortgage-backed securities market well-positioned for revival Importance of green-building Key messages standards ► ► ► The commercial mortgagebacked securities (CMBS) market is expected to rebound, particularly in the most liquid property markets of the core Eurozone. More than half of the countries surveyed expect levels of CMBS issuance to increase in 2014. Some southern and eastern European countries, such as Italy, Russia and Ukraine, are more pessimistic about the CMBS market. Commercial mortgage-backed securities market (CMBS) France 5% Luxembourg UK 13% 13% 33% 53% 33% 60% Netherlands 8% 49% 42% Switzerland 3% 48% 47% 41% 5% 12% Russia 44% 56% Austria 43% 57% Italy Ukraine 27% 68% 23% Strongly Agree 77% Agree Disagree Strongly Disagree Original question – “Do you agree with the following statement: The commercial mortgage-backed securities market will revive in 2014." Page 37 5% 46% 35% 5% 7% 43% 46% 13% 2% 35% 57% Spain Turkey 34% 52% 7% 3% 31% 61% Sweden Poland 28% 56% 5% Germany Belgium 64% In some cases no answers were provided by the respondents. This is not shown in the graph. Thus, the total might deviate from 100%. 5%
    • Rising demand for alternative lenders Importance of green-building Key messages standards ► ► ► As many banks reduce their exposure to real estate, the majority of respondents predict that offer for mezzanine financing and other alternative lenders will rise. Alternative debt providers Belgium 60% UK Netherlands Sweden 30% 20% 10% 69% 7% 9% 2% 79% 14% 14% 72% 14% Germany 39% 45% Ukraine and Poland are the only countries in which fewer than half of investors do not expect the share of alternative financing to increase. Luxembourg 41% 41% New debt sources are likely to help reduce the funding gap in the most liquid European markets. Switzerland France Turkey 28% 15% 65% 28% 20% 23% 48% 40% 24% 35% 9% 25% 57% Italy 34% 58% Ukraine 42% 48% 15% Strongly Agree 6% 18% 77% Spain Poland 12% 54% Russia Austria 16% 52% 31% Agree 54% Disagree Strongly Disagree Original question – “Do you agree with the following statement: Alternative debt providers (insurance companies, pension and debt funds, mezzanine providers) will increasingly provide financing for real estate investments." Page 38 In some cases no answers were provided by the respondents. This is not shown in the graph. Thus, the total might deviate from 100%.
    • Office and retail prices stable or rising; residential property leveling off Key messages Price trends (prime locations) Most countries surveyed expect prices for office space in prime locations to remain stable or increase. However, some countries SWE anticipate prices falling from peak levels. NL ► In countries such as the Netherlands and Spain, which have UK BEL been hit particularly hard by the PL market downturn, prices are LUX GER expected to strengthen over the next year. AT F CH ► Respondents in most countries anticipate stable or increasing prices for prime retail investments. I ► Sentiment about residential prices SP for the year ahead is more bearish, with Rising Constant Falling respondents in nearly half of theRetail Residential countries Office surveyed predicting price falls in Original question – “How do you expect purchase prices to develop in 2014, based on the type of use and location?” prime locations. ► Page 39 RUS UA TR
    • Real estate investment trusts, international funds and private equity set to become more active Seller groups Key messages ► ► Real estate operating companies (REOCs), real estate investment trusts (REITs), international funds and private equity (PE) funds are expected to be among the most active investors in real estate throughout Europe in 2014, on both the buy and sell side. In addition, private or family office , residential real estate companies and institutional investors are set to be among the most likely buyers of property in 2014. REOC/REITs Other international funds Opportunity/PE-funds Open-ended funds Closed-ended funds Corporates (non-property) Residential real estate companies Banks Insurance companies Public Sector Cautious Moderately active 20% 60% 26% 20% 52% 37% 22% 41% 30% 22% 47% 27% 23% 49% 15% 24% 57% 31% 28% 40% 24% 29% 44% 19% 32% 44% 18% 37% 42% 40% Buyer groups REOC/REITs Opportunity/PE-funds Other international funds Private/family Office Residential real estate companies Insurance companies Sovereign wealth funds Open-ended funds Closed-ended funds Banks Original question: “How active do you think the following seller and buyer groups will be in 2014? " Page 40 Very active 26% 55% 38% 43% 33% 19% 47% 39% 20% 41% 33% 20% 44% 23% 43% 33% 27% 24% 49% 26% 24% 48% 23% 13% 19% 26% 43% 26% 34% 61%
    • Investment to focus on residential property Investment focus: residential properties Key messages ► ► ► European respondents will focus their investment strategies most strongly on residential property. Investors in the UK, Spain, France, Germany, Sweden and Italy show the strongest interest in office properties. Despite being the least favored use type, there will still be a significant number of investors focusing on retail in each of the countries surveyed. NL SWE BEL UK RUS PL GER LUX UA F SP CH AT I TR Legend Strong & Moderately Active (values in %) Office Retail Residential Original question – “Compared with 2013, what level of focus do you intend to give to the following real estate use types in your investment strategy for 2014?” Page 41
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    • E-commerce a major threat to retail outlets in nonprime areas Brokers lose market share Key messages ► ► ► 78% 74% 71% 70% Strongly agree 67% 67% 63% Respondents in most countries believe brokers will lose market share for renting or selling residential real estate to internet listing services. The majority of investors in each of the countries surveyed sees e-commerce as a major threat to retail stores in less popular locations. Most of the respondents also expect e-commerce suppliers to rent retail locations in order to increase brand awareness. 62% 61% 57% 53% 53% 52% Agree 44% 32% Replacement of over-the-counter retail stores 84% 84% 82% 80% 80% 76% 74% 68% 67% 67% 64% 63% 58% 54% 50% Original question – “Do you agree with the following statement: Brokers will lose market share for renting or selling residential real estate due to Internet listing services. / Online suppliers will replace over-the-counter retail stores in weak locations. / E-Commerce suppliers will appear as tenants for retail space. / Home office working is out-dated and staff will move back to the workplace.” Page 43
    • Outlook Europe (1/2) Attractiveness Real estate capital market A clear majority in each of the countries surveyed think that their market will be attractive to real estate investors in 2014. ► Most European countries no longer view the Eurozone sovereign debt crisis as the main driver for real estate investments. The positive change in sentiment compared with last year is particularly striking in the countries hit hardest by the Eurozone crisis – Spain and Italy. Real estate financial/transaction market ► Concerns about the impact of inflation have decreased compared with last year’s survey. ► Most European countries expect supply to increase in 2014, due to the maturity of structured debt, the disposal of non-performing loans (NPLs) and the liquidation of open-ended funds. ► The commercial mortgage-backed securities (CMBS) market is expected to rebound, particularly in the most liquid property markets of the core Eurozone. ► New debt sources are likely to help reduce the funding gap in the most liquid European markets. ► ► ► Transaction volume is set to increase in 2014 for the second straight year, driven largely by crossborder investments. ► Spain and Italy are predicted to show the biggest improvements compared with last year. ► As markets improve and the supply of core assets remains low, investors are expected to take more risks. ► Page 44 Investors also anticipate a rise in speculative project developments in selected markets, especially where core products are often unable to deliver sufficient returns.
    • Outlook Europe (2/2) Price trends Investment focus Most countries surveyed expect prices for office ► European respondents will focus their investment space in prime locations to remain stable or strategies most strongly on residential property. increase. However, some countries anticipate prices ► Investors in the UK, Spain, France, Germany, Sweden falling from peak levels. and Italy show the strongest interest in office ► Respondents in most countries anticipate stable or properties. increasing prices for prime retail investments. E-commerce trends ► Sentiment about residential prices for the year ► Respondents in most countries believe brokers will ahead is more bearish, with respondents in nearly lose market share for renting or selling half of the countries surveyed predicting price residential real estate to internet listing services. falls in prime locations. ► The majority of investors in each of the countries Seller/buyer groups surveyed sees e-commerce as a major threat to ► Real estate operating companies (REOCs), real retail stores in less popular locations. estate investment trusts (REITs), international funds and private equity (PE) funds are expected to be among the most active investors in real estate throughout Europe in 2014, on both the buy and sell side. ► Page 45
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