For the fourth consecutive year, Berlin takes the first place in the ranking of top European cities for real estate investment and development in a survey published jointly by the Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC). The German capital came first out of 31 cities in the report titled Emerging Trends in Real Estate Europe 2018, based on the opinions of more than 800 property professionals including investors, developers, lenders, agents, and consultants.
Berlin's population growth and vigorous business expansion— with the establishment of leading start-up and tech companies—are predicted to sustain the already high real estate values in the city. In addition, an educated workforce and a reputation for creativity are major selling points for Berlin, a multicultural cosmopolitan city where people from all the world want to relocate, work and live.
Top 10 cities
Another German city, Frankfurt was ranked second after a year of solid growth, much of which has come from the financial sector in the aftermath of UK’s decision to leave the European Union. In joint second spot was Copenhagen, whose booming residential sector has captured the attention of domestic and international real estate players. In addition, Denmark’s capital is very popular with tourists, consumers, co-working companies, and retail and food and beverage brands, making it all the more appealing for investors. Munich, while it is one of Europe’s most expensive markets, came fourth, remaining an attractive destination for investors and developers alike. Madrid, jumped up four places to fifth, benefiting from positive office rental growth prospects, followed by Hamburg, Dublin, Stockholm, Luxembourg and Amsterdam.
The fact that German cities once again took four of the top 10 spots in the report's score card of prospects 'is no surprise' says the report’s section discussing Markets to Watch. 'Germany has been steady state for a long time now. With Berlin, people truly believe it’s going to become a major city', a pan-European financier says.
Economic and political outlook 2018
Optimism is spreading through Europe’s property industry, thanks to the combination of the improvement of the financial-economic situation in the Eurozone and the continuing attractiveness of real estate as an investment asset class. Despite concerns over prime real estate values and a potentially volatile geopolitical backdrop, survey respondents were more optimistic than last year about their European business prospects. About half of them indicate that profits and headcounts will increase in 2018, while 42% expect business confidence to increase, a 10 per cent jump from last year's results. Over a quarter of respondents see an improving political environment for 2018.
Logistics vs Retail
In terms of sectors, logistics was the most popular property asset class for investors. Niche residential sectors such as student housing, senior living, and healthcare established themselves as good bets. Meanwhile, investors reported that they are shying away from retail, the traditionally dominant real estate sector, which is affected by long-term restructuring. Out-of-town shopping centres ranked last out of the 23 sectors which were ordered by their prospects next year; retail parks were placed 20th and city centre shopping centres came only slightly higher in 16th place.
The tech factor
Figuring out new customer demands as well as the impact of new technology on real estate was highlighted by those interviewed.
"Our conversations with industry leaders have demonstrated that technology is increasingly being viewed as one of the key trends affecting real estate," said Lisette van Doorn, Chief Executive of ULI Europe. "We are seeing a growing emphasis on the impact technology has on all aspects of real estate, ranging from the changing behaviour of users to the real estate management and valuation process, and the new skills needed to successfully adapt to this new reality."
However, several issues are still proving worrisome for investors. The key concern for Europe’s real estate players is the availability of suitable assets. More than 75% of the survey respondents believe that investors are taking more risks to achieve target returns; however, many key industry players indicated a more cautious approach to risk-taking in 2018.
Brexit remains a live issue and a source of frustration for the real estate industry. While the degree of Brexit-related pessimism has decreased considerably since last year’s report 'there is a strong consensus that it will be at least partly responsible for both investment and values falling in the UK during 2018,' the new report says. London landed near the bottom for the second year running, in 27th place.
The Urban Land Institute and PwC
The Urban Land Institute is a non-profit education and research institute. Established in 1936, the institute has over 40,000 members worldwide representing all aspects of land use and development disciplines. PricewaterhouseCoopers is a multinational professional services network headquartered in London, with offices in 158 countries.