With all the political doom and gloom in 2016, and the disappointing investment data for property, it is tempting to try to sweep the year aside as an anomaly and thereby overlook some of the key property market trends that emerged and are to stay for the years to come.
A quick review of 2016 shows that the office sector remains the dominant asset class for investors: it accounted for nearly half of total investment across Europe as a whole. The retail sector, although shrinking by over a fifth in Europe during the year to September, was the hero of the CEE 2016 investment fable: some of the largest, and in many cases only, transactions in CEE countries featured prominent shopping centres. The last of the main commercial property sectors, logistics and industrial, saw yields fall to unprecedented levels as investors were blinded by the potential offered by the supply chain evolution.
Looking ahead, in mature western European markets with stable employment prospects, the office sector – which accounts for most core, city-centre stock – will continue to dominate investment and be seen as a safe haven amidst wider market uncertainty. Medium-term growth opportunities offered by retail property in high-growth CEE and SEE markets will continue to attract investment in this sector, albeit with ample capital chasing ever dwindling opportunities. Potential returns may become somewhat subdued and lead to a spill over of capital into other asset classes. The ‘newby’ investors, those that entered the market in 2016, will scour it for opportunities to diversify their holdings.
The industrial and logistics sector continues to offer the greatest long-term potential for property investment. The division between retail and logistics will blur even further in 2017 as occupiers and developers adjust to changing retail trends and wake up to the possibilities inherent in certain new technologies. Regardless of the maturity of the market, 2017 will therefore see further repositioning of the logistics sector: logistics will move closer to city centres in order to cater for ever-needier, more impatient and faster-moving consumers.
The investors that are best able to respond to increasingly complex consumer demands and ever greater competition among corporate occupiers will be the ones, we predict, who will indeed have a Happy New Year.