Emerging Trends in Real Estate: Europe 2016

#emergingtrends
Emerging Trends in
Real Estate: Europe 2016
Beyond the capital
4 February 2016
Agenda
Presentation:
Overview and in-depth look
at selected European cities
1. Dr Holger Müller, Managing Director,
Real Estate, PwC Russia
2. Oleg Malyshev, Partner,
Real Estate Leader, PwC Russia
Panel discussions:
Panel discussions
Panel 1 theme:
Moscow 2016: how to make the most of the crisis
Panel 2 theme:
When will the money return to the market?
PwC
2
About the
survey
Emerging Trends in
Real Estate® (ETRE)
Europe is a highly
regarded, widely read
trends and forecast
report for the real
estate sector. Published
jointly by PwC and the
Urban Land Institute, it
is now in its 13th
edition.
The 2016 edition
reflects the views of
over 550 decisionmakers all over Europe,
who completed surveys
or were interviewed as
a part of the research
for this report.
PwC
PwC
Poland
Romania
Finland
Denmark
Cyprus
1%
2%
Norway
Czech Republic
Other
Germany
22%
3%
3%
3%
3%
3%
4%
Sweden
Russia
Portugal
Australia
Greece
Spain
Netherlands
12%
4%
France
Ireland
5%
5%
Italy
Belgium
10%
6%
6%
Turkey
European firm focused primarily on the country
European firm with pan-European strategy
21
Global firm with global strategy
42
%
23
Other
13
#emergingtrends
3
Riding high
Average city prospects
Low interest rates and
the sheer weight of
capital bearing down on
European real estate
mean that most
investors remain
bullish about the
industry’s business
prospects in 2016.
3,7
As prime assets
increasingly are
difficult to find,
investors are focused
on cities and sectors
rather than countries.
3,2
3,6
3,5
3,4
3,3
3,1
3
2,9
2,8
2006
PwC
PwC
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
#emergingtrends
4
Business
prospects
in 2016
“Business is good; value
is there for the right
deals. However, we
fully expect there to be
shocks to the system
along the way.”
ETRE 2016 interviewee
(global investor)
Business confidence
2016
37
2015
47
PwC
53
10
43
10
45
7
Business profitability
2016
48
2015
56
33
11
Business headcount
2016
38
2015
48
Increase
Увеличилась
PwC
%
55
7
43
Stay the same
Сохранилась
на прежнем уровне
9
Decrease
Снизилась
#emergingtrends
5
Business
profitability
in 2016
%
“The last three or four
years it’s just been a
straight line going up,
and that is not the case,
now.”
ETRE 2016 interviewee
(German lender)
PwC
PwC
#emergingtrends
6
European
business
environment
in 2016
%
39
13
Improve
Stay the same
12
10
46
50
48
65
10
Get worse
The European
economy
41
42
24
Political
uncertainty
Issues
impacting
business
Cost
of finance
Availability
of prime assets
Shortage of suitable assets to acquire
56
25
9
10
Occupier/market fundamentals impacting demand for real estate
44
41
12
3
Cost of finance
19
32
30
19
Sustainability/resilience
16
PwC
41
Significant
PwC
30
Moderate
Low
No effect
13
#emergingtrends
7
Interest rates
and inflation
2016
Increase significant
Increase somewhat
Inflation
Stay the same
Decrease somewhat
Decrease significantly
“We are close to the top
… the end of the yield
compression story.”
ETRE 2016 interviewee
(CEO of a London-based REIT)
PwC
PwC
Short-term
interest rates
Long-term
interest rates
#emergingtrends
8
1%
Availability of
equity and debt
in 2016
9%
11%
Increase significant
35%
Increase somewhat
Equity for
refinancing or
new investment
Stay the same
Decrease somewhat
44%
“Everybody wants to
increase allocations to
real estate because it
offers returns that you
cannot achieve with a
similar risk level in
bonds.”
ETRE 2016 interviewee
(global investor)
1%
6%
38%
3%
7%
11%
Debt for refinancing
or new investment
PwC
8%
Debt for development
48%
PwC
Decrease significantly
32%
46%
#emergingtrends
9
Relative real
estate yields –
higher than ever
%
The margin between
bond and property
yields has never been
higher over the past 10
years.
Leveraged yields of 12%
and higher are possible
in prime locations.
PwC
PwC
EURIBOR
Euro bond
yields
Euro property
yields
Five-year swap
been
#emergingtrends
10
Movement of
cross-border
capital into
European real
estate in 2016
Increase significant
Increase somewhat
The Americas
Stay the same
Decrease somewhat
Decrease significantly
Europe
PwC
PwC
Asia-Pacific
#emergingtrends
11
Development is
seen as an
attractive way
to acquire prime
assets.
Agree
Strongly
agree
Neither agree
nor disagree
Disagree
PwC
PwC
Strongly
disagree
#emergingtrends
12
Alternative real
estate sectors
offer good
opportunities.
Agree
Strongly
agree
Neither agree
nor disagree
Disagree
PwC
PwC
Strongly
disagree
#emergingtrends
13
Reasons for
considering
alternatives
include:
Demographic demand drivers
%
66
Higher yield
55
Stable income return
49
Diversification
49
Other
10
PwC
PwC
#emergingtrends
14
Sectors being
considered
include:
Student accommodations
%
59
Hotels
51
Healthcare
37
Serviced offices
24
Other
12
Self-storage
10
Data centres
10
PwC
PwC
#emergingtrends
15
Very good
Sector
investment
prospects 2016
Good
Fair
Poor
Very poor
23
5
High street shops
34
30
Retirement living
30
60
Data centres
28
10
22
Student housing
27
Shared/serviced offices
23
58
23
43
Hotels
41
6
42
27
22
53
22
57
Logistics facilities
21
The best prospects are
seen in high street shops
and retirement living,
while the worst are in
social housing and
suburban offices.
16
21
45
38
44
40
10
48
9
32
7
33
Social housing
5
PwC
55
12
2
39
7
50
32
Business parks
Suburban offices
10
34
Self-storage facilities
2
10
25
Industrial/warehouse
10
5
31
50
11
0
1
27
Regional shopping centres
14
3
22
44
Parking
PwC
12
22
Serviced apartments
15
7
24
56
20
4
28
City centre shopping centres
Central city offices
2 2
15
Private rented residential
Healthcare
0
44
Housebuilding for sale
22
1
28
6
28
37
4
22
25
3
2
15
#emergingtrends
16
Europe’s 10
most active real
estate markets,
Q4 2014-Q3
2015 (€ billion)
Source: Real Capital Analytics
PwC
PwC
London
Berlin
Paris
Frankfurt
Madrid
Hamburg
Munich
Milan
Dublin
Amsterdam
#emergingtrends
17
Changes
expected in
occupiers’ space
requirements,
2016
“Twenty years ago we
had tenants, now we
have customers. In 20
years’ time we will have
guests.”
ETRE 2016 interviewee
(CEO of a major
European REIT)
PwC
PwC
Retail
Increase
Stay the same
Industrial and
logistics
Office
Decrease
Other
#emergingtrends
18
Impact on
occupiers’ space
requirements
over the next 3-5
years
Access to adequate
transport network/
infrastructure
Increase
Stay the same
Flexible working
Decrease
“Megatrends are about
changing business
practice and urban
density is changing how
real estate is used.”
ETRE 2016 interviewee
(real estate investor)
PwC
PwC
Urbanisation
of business
Proximity to
complementary
businesses/
innovative
business
environments
#emergingtrends
19
Investment
2016 European
city rankings
Development
1 Berlin
2 Hamburg
3 Dublin
4 Madrid
5 Copenhagen
6 Birmingham
7 Lisbon
8 Milan
9 Amsterdam
10 Munich
11 Stockholm
12 Barcelona
13 Budapest
14 Istanbul
Good = above 3.5
15 London
Fair = 2.5 to 3.5
16 Helsinki
Poor = from 1 to 2.5
17 Warsaw
18 Edinburgh
19 Prague
20 Frankfurt
21 Brussels
22 Paris
Note: Respondents scored
cities’ prospects on a scale of 1
= very poor to 5 = excellent.
Source: Emerging Trends
Europe Survey 2016
23 Vienna
24 Zurich
25 Rome
26 Lyon
PwC
PwC
27 Athens
28 Moscow
#emergingtrends
20
Ups and downs
2015
No. 1
Berlin: No. 1 (2015: No. 1)
2016
“[The] city … is still underdeveloped
from a real estate point of view.”
- Real estate investor
No. 1
“Berlin will have probably all-time
historic high levels of leasing.”
- International fund manager
Athens: No. 27 (2014: No. 5)
The optimism [about] Athens … has
evaporated entirely after a year of
political and economic chaos.
2014
No. 5
2016
No. 27
PwC
PwC
Only forced sellers are likely to dispose of
assets in a market in which values have
fallen by 60% to 85% … since 2007.
“[But] by the end of 2016, Greece could
become interesting.”
- Fund manager
#emergingtrends
21
Safe havens are
losing their appeal
2015
2016
No. 10
No. 15
2015
2016
No. 24
No. 22
London: No. 15 (2015: No. 10)
London has again fallen five places.
“Current prices … are way above where
they should be if you follow the normal
trend line”
- International investor
“Suddenly everybody is beginning
to look to sell.”
- Real estate investor
Paris: No. 22 (2015: No. 24)
Still a major, go-to destination for real
estate investors worldwide, Paris is one of
the few European cities to offer enough
liquidity and depth to attract major
international players.
But, high prices and political instability
are now major deterrents to investors.
PwC
PwC
#emergingtrends
22
2015
2016
No. 11
No. 10
2015
2016
No. 26
No. 23
2015
2016
No. 25
No. 24
PwC
PwC
Munich: No. 10 (2015: No. 11)
While one of the priciest real estate markets in Europe, the city
is often described as “healthy” and “stable” by interviewees.
“[Munich is] one of the few rental growth stories on the
continent.”
- International investor
Vienna: No. 23 (2015: No. 26)
The Austrian capital is seeing increased interest from
Asian and Russian buyers.
Strong occupier demand bodes well for office rents, while the
recent influx of refugees will further stimulate demand for
housing.
Zurich: No. 24 (2015: No. 25)
“We are generally optimistic but not euphoric.”
- Local investor
Buying remains difficult, and “most of the capital is domestic”.
- Local investor
The strong revaluation of the Swiss franc has raised a lot of
concerns, but so far the effect has not been overly detrimental.
#emergingtrends
23
Out of fashion
Moscow:
No. 28 (2014: No. 13)
A common view is that things are so bad,
they can only get better.
2014
“We have experience how to get through a
crisis”
- “moderately pessimistic” local investor
No. 13
2016
No. 28
The market is seeing increasing
“rouble-isation”.
Local market players are expecting
greater differentiation between good and
poorer properties.
How bad is it really?
PwC
PwC
#emergingtrends
24
Moderately
pessimistic
sentiment
Moscow’s relative rating
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
0
5
Moscow is now cut off
from global capital:
“Moscow is out.
Unknown, unloved”,
said one interviewee.
But there is a lot of
repatriated domestic
capital. As one
interviewee claimed:
“Russia is full of
money.”
PwC
PwC
10
15
20
25
30
Investment
Development
#emergingtrends
25
Russian focus: ХХ
What do investors think?
Moscow real
estate market:
a mood of
moderate
pessimism?
15%
Офисы
Office
Торговые
Retail центры
14%
Warehouse
Склады
12-13%
13%
12%
• The total commercial
real estate investment
volume has declined,
according to various
estimates, by 20-40%
in USD terms.
• Capitalisation rates
are high while
average values
changed only slightly
in 2015.
PwC
PwC
10-11%
11%
10%
9%
8%
2008
2009
2010
2011
2012
2013
2014
2015
#emergingtrends
27
Moscow real
estate market:
investment
volume trends
by segment
2015, USD million
2014, USD million
Industrial
Multifunctional
business centres
300
751
162
488
Office
624
864
Hotels
439
563
Retail
739
526
Residential
323
75
Source: JLL (data), PwC (analysis)
PwC
PwC
#emergingtrends
28
Investments:
the balance of
supply and
demand
Most market players
rate residential
properties as the most
attractive.
The greatest shift in the
balance of supply and
demand has been seen
in the office segment.
Source: JLL (data), PwC (analysis)
PwC
PwC
Attractive for investments
Oversupply
Residential
50%
50%
Retail
31%
46%
Apartments
23%
19%
Hotels
15%
23%
Office
15%
54%
Multifunctional BC
15%
12%
Industrial
15%
23%
Street retail
12%
23%
#emergingtrends
29
Moscow real
estate market:
Has there been a
reduction in
demand?
Level of demand
Consistent with 2014
level due to completion
of major transactions
The vacancy rate is 10%,
the highest since 2003
Demand grew due to a
30% high level of activity
among major retailers
Source: JLL (data), PwC (analysis)
PwC
PwC
Demand has remained
the same due to lower
prices for new
properties, but we are
seeing a shift in demand
away from the
apartments segment
Rental rates
10-20%
15-20%
10-15%
Sale prices
5-7%
#emergingtrends
30
What market
players are
expecting
Despite the negative
macro environment, a
number of market
players are expecting
rental rates and sale
prices to grow.
A significant number of
respondents reported
price stabilisation.
Source: Survey of real estate companies,
PwC
PwC
PwC
Increase
Stay the same
Decrease
Residential
19%
45%
36%
Apartments
25%
38%
38%
Office
44%
28%
28%
Retail
30%
8%
62%
Industrial
30%
56%
15%
#emergingtrends
31
Will forecasts
return to precrisis levels?
4%
Yes, within 1–2 years
The majority (42%) of
market players
surveyed believe the
market will bounce
back to 2013 levels for
both demand and
prices within five years.
However, 35% of
respondents do not
think that reaching the
2013 level is feasible
within this timeframe.
42%
Yes, within 5 years
15%
Yes, but only
in the long term
35%
No
Source: Survey of real estate companies,
PwC
PwC
PwC
#emergingtrends
32
Moscow 2016:
how to make
the most of
the crisis
Panel discussion to be moderated by:
Dr Holger Müller, Managing Director, Real Estate,
PwC Russia; and
Sergey Riabokobylko, Board member, ULI Russia
Panel members:
• Sergey Matyukhin
CEO, KR Properties
• Artyom Panin
First Deputy General Director, Alcon Development
• Elena Guseva
Vice President, Lider Invest
• Maxim Gasiev
President, PSN Group
PwC
PwC
#emergingtrends
33
When will the
money return
to the market?
Panel discussion to be moderated by:
Dr Holger Müller, Managing Director, Real Estate,
PwC Russia; and
Miles Jones, Board member, Urban Land Institute (Russia)
Panel members:
• Lee Timmins
Senior Vice President, Hines
• Adrian Baker
Group Managing Director, Raven Russia
• Christopher Van Riet
Managing Director, Radius Group
• Andrey Veselov
Chief Investment Officer, Lenhart Global Investments
PwC
PwC
#emergingtrends
34
Explore the full
survey data and
findings at:
www.pwc.com/etreeurope
www.europe.uli.org/research/emergingtrends
PwC
PwC
#emergingtrends
35