PwC. Emerging Trends in Real Estate. Climate of change. Europe 2020

Milano, 21 gennaio 2020

PwC. Emerging Trends in Real Estate. Climate of change. Europe 2020

Europe’s property leaders remain resolute in their belief in real estate as an attractive investment asset class despite strong political and economic headwinds.
The threat of a global recession, escalating trade tensions between the US and China, and continuing uncertainty over Brexit have all clouded sentiment among Emerging Trends in Real Estate® Europe’s survey respondents and interviewees.
There are consequently question marks against the European economic outlook for 2020 although the industry draws comfort from central banks’ decision to maintain or cut
interest rates – a significant change in direction from last year’s report and already a big boost to investment.

At the same time, rising labour and material costs have added to the risk associated with development – the primary industry concern for 2020 is the cost of construction.
Political risk is a constant concern for interviewees, but environmental, social and governance (ESG) issues have perhaps shown the biggest move up the industry agenda over the past 12 months.

While ESG has been an important reference for years, this survey and interviews suggest a meaningful change of tone. Most obviously, this change has come from the pressure exerted by institutional investors through their ESG investment criteria. But it has also come via developments at the product end of the business – as we see opportunities emerge in response to changing customer demand for real estate that provides a better overall impact.

In terms of sectors, logistics once again tops the rankings for investment and development prospects. Though some industry players are put off by high values here, the majority favour this sector where supply cannot keep up with the changing patterns of consumer demand. There is still seen to be lots of room for growth in e-commerce in continental Europe.
The same bullish sentiment holds true of residential despite a new regulatory threat to rental housing – rent controls – in several cities across Europe. Acute supply shortages are still proving a compelling reason to deploy capital into residential, which in its various forms dominates the investment rankings for 2020.
With a number of real estate sectors undergoing significant structural change it is hardly surprising that many interviewees regard investing in “anything related to a bed” as a sound, defensive strategy at this point in the cycle, supported as they are by long-term urbanisation and demographic trends.

As Emerging Trends Europe has highlighted over the past few years, the industry’s is facing a transformation into becoming a service industry. There is a recognition that, for all the inherent self-protectionism that the traditional view of real estate supports, the industry sector that funds, builds and operates the space in which we live, work and play, is starting to embrace complexity and respond to its true role as part of society’s infrastructure.
In traditional real estate speak, this means that increasingly the industry believes operational risk is one worth taking to achieve target returns. The latest survey and interviews suggest a blurring of sector boundaries as part of a bigger investment picture in which mixed-use assets, improved transport connectivity, greater use of technology and smart mobility solutions are all seen as integral to the economic growth of Europe’s cities and the investment potential of real estate.

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