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What’s Disrupting the Property Market?

Colliers International suggests alternatives for investors stymied about the current state of the office market

What should investors do in the face of a rapidly changing real estate market? In Colliers International’s headline report for 2016, A View from the Top, experts evaluate what the markets look like now, and how astute investors can take advantage of property alternatives.

‘When evaluating opportunities for 2016, we can look start by looking at two things – which property market drivers have changed, and which have not?’ said Damian Harrington, Head of EMEA Research at Colliers International. ‘Interest rates and expectations, the low availability of investment grade assets, the weight of capital targeting property, demographic pressure and the international search for yield remain unchanged. In contrast, drivers that have changed include an increase in core property prices, improved debt conditions, an increase in development but also higher geo-political and macro uncertainty.’  

The latter is the biggest change in 2016 for the property market, especially in Europe, where the threats to the stability of the EU have scaled-up significantly since 2015. However, even with this volatility, Colliers Global Investor Outlook released at the end of 2015 found that over half of global investors intend to expand property portfolios in 2016, even though just-under half intend to take on more risk.

More investors looking to expand their portfolios goes hand-in-hand with an increase the weight of capital targeting property. Yet in a market where available stock to buy continues to diminish, investors have been driven to look at both alternative property assets and locations where competition isn’t as strong, or where growth opportunities exist. External trends such as ageing demographics, increasingly urban and digital populations and the disruptive role of technology are driving this change.

As a result, investment into ‘alternative’ asset types in Europe has increased market share, with residential the clear leader. The end of 2015 saw residential investment surpass industrial/logistics as the third most prominent form of investment (13.7%) after office (42.2%) and retail (26.4%). In fact, hotels (8.7%) were on par with industrial/logistics investment (9%) taking the alternatives total to 22.4%. A lack of product is motivating another change – there was a surge in land/development acquisitions across Europe in 2015, which rose by close to 40% over 2015.

The CEE market, however, functions differently. While office and retail remain the dominant force at 40 per cent and 37 per cent of the market respectively, the industrial and logistics sector is by far the third most important sector - with the pan-European distribution strengths of markets such as Poland, the Czech Republic and Slovakia keeping volumes at almost 13% of the total. Hotels has also seen a rebound in activity across the region accounting for 7% of the market, yet residential investment barely registers on the scale – at only 3 per cent. This highlights the extent to which broad external trends play out very differently across markets in relation to how markets function, local economics, culture and geopolitics/legislation.

Yet the combination of technological innovation, demographic pressure, and associated changes in consumer and workplace behaviour, are giving rise to a new generation of assets derived from what might be collectively referred to as the ‘Great Market Disrupters’. We consider new formats that we see rising across Europe such as hoteling, healthcare, leisure, urban logistics and other new mixed-use formats to be legitimate asset types and growing niche investments.

Office landlords need to take a cue from employers who are responding to technological changes and flexible working roles. Is your office portfolio ready to meet the changing workplace?

‘The evolving approach to employment and office use is spinning off many new opportunities’ said Omar Sattar, Managing Director of Colliers International Czech Republic. ‘ So considering a  change of use for redundant office space may be a smart solution, with demand for other facilities such as urban logistics, hoteling and alternative mixed-use formats on the rise. The fact this change is supported by long-term fundamentals including strong demographic change, market behaviour and technological advancement show we need to take these new opportunities seriously.’

‘Looking for new opportunities, like those mentioned here, and moving on them quickly is key to staying ahead in 2016.  Prospects are being found at the proliferating intersection points between the core assets classes,’ said Mr. Harrington. ‘For example, the structural change and integration of retail and logistics is one area that is changing rapidly with many new asset types being created, moving forward. It is also worth considering new approaches to retail with the increasing integration of leisure and shops into a ‘destination experience’. - Prague 21.05.2016 

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