Has the European real estate market bottomed out?
The news over the last few weeks has been depressing with the European economy struggling, the European Central Bank considering yet more fiscal assistance and property prices in some country still falling. Against this backdrop many will find it interesting to learn that funds raised in the private real estate sector have hit a seven-year high with around €21 billion invested in European real estate so far in 2014. It would also appear that private real estate funds have in excess of €50 billion ready for further investment as the market recovers.
Perhaps the most surprising figure from this survey is that 44% of all capital raised throughout the worldwide real estate market is headed for Europe. This compares with just 17% back in 2013 and shows a growing appetite for what many still see as a “bombed out” European real estate market.
Have European real estate markets hit rock bottom?
If we look at Spain, Portugal and many other areas of Europe, it is difficult to say with any conviction that the European real estate sector has hit rock bottom. There are still massive overhangs of investment property waiting to be sold, the banks have their assets tied up in unwanted real estate and many investors are still feeling the cold chill of the European real estate market collapse. So, perhaps the more sensible answer to this question is that European real estate markets may not have hit rock bottom yet but there is growing interest in long-term recovery.
Quote from PropertyForum.com: “We all have our very own distinct opinions on property investment, what makes a good property and what makes a good area. However, I would be interested to know when looking at a property investment what is the most important element for you, the actual house or the area in which it is situated?”
It is also worth noting that pension funds and other similar long-term investment vehicles are not necessarily interested in short-term fluctuations and instead look at the long-term picture. That is not to say we won’t see any short to medium-term recovery and opportunities to take profit, but it does seem as though long-term funds are now finding their way to the real estate markets of Europe.
Overseas investors targeting Europe
While you would expect a large number of European investors to show long-term confidence in the European real estate market, surprisingly the vast majority of investment during 2014 has come from non-European companies. On one hand this would seem to show that European real estate valuations compare favourably with their overseas counterparts and perhaps, just perhaps, the European economy is finally starting to find its feet with the potential for medium-term recovery?
When you look at real estate market such as those in London which are now above and beyond their record highs prior to the 2008 US mortgage crisis, perhaps investors are switching from London into Europe? Rental and capital valuations in the London real estate market bear absolutely no resemblance to their European counterparts although it has to be said that confidence is still relatively strong in London. However, looking on a long-term basis perhaps now is the time to consider switching some of your lucrative London real estate investments into the “bombed out” European sector?
Conclusion
It is impossible to say with any confidence that the European economy has hit rock bottom, real estate market will not fall further and the Euro is out of the woods. However, the fact that record investment in the European real estate market is coming from overseas would suggest growing confidence and more attractive long-term valuations when considering European and non-European real estate. It would take a brave person to call the bottom of the European real estate market, it would take a brave person to move lock stock and barrel into the European investment arena but maybe, just maybe, that time is approaching?