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How the Cycle has Changed our Attitude Towards Risk

April 1, 2016

 

Investors of all shapes and sizes, quoting low interest rates, loose monetary policy and a strong economy, have enthusiastically driven yields to unprecedented lows and helped push transaction levels in 2015 to a record high - more than a fifth higher than in 2014*. While prime and core locations remain safe harbours for capital, the more adventurous investors have climbed up the risk/return curve in search of higher returns. Greater risk appetite is translating into greater market breadth – new geographies – and depth – secondary and tertiary opportunities within a given location. Such increased risk appetite may explain the changes in the most desirable places to invest.** Despite being the largest city within the world’s most transparent property market, London has now fallen out of favour among commercial real estate investors who are starting to prefer leading global economic centres such as Birmingham and Lisbon. As the cycle progresses, exotic Eastern European locations such as Bulgaria, Romania, Hungary, Croatia and Serbia have re-emerged as investment destinations. We are pleasantly surprised to see a great deal of investors eager to get a piece of the high-yielding action that these markets offer. From core investors to opportunistic to moon-shooters, everyone is chasing the market for yield. They are venturing into ever more and larger transactions.

 

At a whopping €15.7 billion of transactions Blackstone, the largest investor in Europe in 2015, is “still here to buy in Europe”, according to the Senior Partner for Europe, Anthony Myers.***

 

Whether the fortune hunters of today are bold or naïve remains to be seen. When the merciless hand of Mrs Recession comes knocking on the door will you be left weeping or gloating?

 

*Savills

**PwC Emerging Trends in Real Estate Europe 2016

***PropertyEU, March 2016

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