Property

Alternative European Investment Destinations 2018

Europe

Real estate pundits are quick to point out how little an effect politics can have on robust property markets: Is a coup going to hurt Thailand’s growth? None ever has. Will the left-leaning Liberals in Canada undo the previous decade’s pro-business Conservative gains? British Columbia and Ontario both took measures to cool their markets last year. But Shinzo Abe’s “Abenomics” has been credited with Japan’s economic and property resurgence starting in 2012, and when Beijing decides RMB is going nowhere, Melbourne suffers. Because politics can influence property and a clutch of European cities are trying to steal some of London’s thunder ahead of Brexit.

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No More Pretending

“No one city is going to replace London in theshort run, but bit by bit other cities are chipping away at London’s dominance,” begins Knight Frank director, head of research and consultancy in Greater China, David Ji. Knight Frank’s own Global Cities research from two years ago dropped hints that Frankfurt could be Europe’s next great super-metropolis (Frankfurt Rhine-Main), and European Union cities like Amsterdam, Madrid and Dublin are revving up their marketing plans.

With Prime Minister Theresa May allegedly losing her grip on the government (her infrastructure boss quit in December), she’s been made to seem the biggest threat to a smooth, favourable Brexit. Earlier in the month The Guardian reported EU chief negotiator Michel Barnier made it clear no separate treaty or special privileges would be created for London’s financial industry. “There is no place [for financial services]. There is not a single trade agreement that is open to financial services. It doesn’t exist,” he was quoted as saying, adding, that decision was the result of “The red lines that the British have chosen themselves. In leaving the single market, they lose the financial services passport.”


London

Ji admits that there are scores of modern industries that London and the UK have embraced that are not bound by geography (creative industries, advertising) and for the moment, London is still safe; it’s not about to sink into a morass of empty towers and unemployed bankers. But the rest of Europe is bucking for attention, embracing new technologies and industries, wooing new business and young talent, and forging ahead with co-working spaces and millennial-ready developments like Google campuses. Best of all they can do it without disrupting operations, with EU membership, and at a significant discount. “Rents are lower,” says Ji, “Rents are growing because people are moving there. But it’s still much cheaper than London… If cities encourage this kind of culture… and really embrace this kind of model and community they’ll be successful.”

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The New Old Country

IP Global director Jonathan Gordon agrees. “If you look into European alternatives to the UK market, Berlin, Frankfurt and Lisbon each provide favourable investing environments. In Germany, there appears to be upward pressure on the potential for real estate value growth, particularly in Berlin and Frankfurt, where the supply-demand imbalance has been most marked and the migrant population is increasingly flourishing. Indeed, this supply deficit is forecast to remain at levels of up to 40% until 2030.”

Their locations in the EU’s biggest economy, Germany, make Frankfurt and Berlin obvious choices, and both have been growing at a steady clip over the last five years. Right now Berlin is outpacing Frankfurt with double-digit growth simply because the city has invested heavily in tech industries. The Urban Land Institute and PwC’s Emerging Trends in Europe 2018 also rank Berlin as Europe’s strongest investment for 2018, adding Copenhagen, Madrid, Dublin Stockholm, Luxembourg and Amsterdam to their top ten (along with Frankfurt, Hamburg and Munich). Notably, the report ranks London at number 27 — below Manchester and Birmingham. Berlin boasts some of Europe’s best yields, strong capital gains, high residential tenancy rates, and all of them sustainable.


Amsterdam

Copenhagen is making waves in residential investment due to strong employment growth and economic recovery in Denmark, low interest rates and one of the highest standards of living in the world. There’s also good variety in Copenhagen. PwC: “Investors are interested in all types of residential in the city, from senior living to student housing and everything in between. Student housing is tipped as a sector to watch as it barely exists yet as an asset class here.” Amsterdam has also turned a corner, and as Ji noted, media and tech are taking over, but heavy hitter RBS and Japanese investment bank MUFG have chosen Amsterdam to be their post-Brexit homes. “Amsterdam has the infrastructure and is a great, multinational place to live,” said PwC. The city’s biggest hurdle is residential affordability and supply, which the government is responding to with its radical Woonagenda 2025 plan, which demands all new housing projects meet a 40-40-20% public-affordable-market value mix, which many Netherlands developers have already agreed to. Dublin was the first Brexit benefactor, and its geographic proximity to London will keep it that way in the coming months. JP Morgan buying nearly 100,000 square feet in the city could be a sign of things to come.

Narrowly outside PwC’s top ten are Lisbon and Barcelona, itself now sinking into a political quagmire due to the majority election of Catalan separatist parties in December’s regional elections. “Lisbon has become an increasingly attractive city thanks to good quality of life, low cost of living and an affluent population, leading some to dub it ‘The New Berlin,’ says Gordon. Barcelona has risen in the ranks despite its political upheaval (though Spain’s giant Caixa Bank and Sabadell decided to relocate their headquarters outside Catalunya in October), as most investors don’t believe independence will actually come — and if so not as drastically as Brexit. “The city has a young population, strong co-working culture and a broad occupier base — star tech companies Tesla and Amazon are here, Tesla with its Spanish headquarters and Amazon setting up hubs for research and development, and to support sellers in Southern Europe,” argued PwC. The key word being Europe.

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