Online real estate investment platform BrickVest just published their forecast for the real estate market in 2018. Developed by CEO Emmanuel Lumineau and CIO Thomas Schneider, the outlook discusses key trends including the impact of Brexit, UK interest rates, real estate investment strategies and specific industry sectors to watch out for.
- Europe remains a strong investment hub despite Brexit
- Investor focus is beginning to shift away from UK and towards Germany
- A gradual raise in UK interest rates is needed and will help control inflation
- Finding good deals will be the main challenge in 2018
- Office sector is the most volatile
While Brexit has had a clear effect on the UK, investment across Europe remains strong. There is still an abundance of international capital flowing into real estate, but Germany is pulling ahead of the UK in terms of preferred region.
“Our recent research showed that one in three (33%) commercial real estate investors highlighted Germany as their preferred region to invest in,” BrickVest reports. “This is the first time that Germany has been chosen as the number one region to invest in and ahead of the UK which was selected by a quarter.”
BrickVest also supported the Bank of England’s decision to begin a series of gradual interest rates increases. They called the decision “momentous,” commenting that the BoE is right to feel that inflation may be getting out of control. Interest rates in England will likely remain at historic lows, however, because the European Central Bank recently announced it was halving its bond-buying efforts and quantitative easing (QE).
“The ECB’s decision to unwind its QE programme to €30 billion a month is a glowing endorsement of healthy Eurozone growth and falling unemployment, which will more than likely mean that interest rates will stay at historic lows until at least 2019 in order to help financial markets adjust,” according to BrickVest.
While demand is expected to remain high in 2018, investor may need to start branching out in order to find good deals. “Investors will have to find the right balance of higher leverage (due to continually low interest rates) and being able to handle potential price corrections in the event that the market cools off due to external factors such as Hard Brexit or escalation in the US vs. North Korea conflict,” writes Mike Wheatley at RealtyBizNews.
More investors are looking at less tradition products such as student housing to get better returns and fill out their portfolios. Additionally, as cap-rates in markets like Paris are at historic lows, institutional investors are being forced into less liquid secondary and third level cities. Some institutional investors are also looking at real estate debt products.
“The best investment options for 2018 will most likely be found in value-add real estate in combination with a conservative financing policy,” said BrickVest CEO Emmanuel Lumineau. “We expect to see more investors draw to student housing, serviced apartments and senior housing to generate better returns. Investors may also increasingly allocate to real estate debt to maintain their exposure and secure an achievable exit at maturity.”
The office sector remains most volatile for investors, with many international firms hesitant to make decisions because of long-term office space requirements. Regardless, about 34% of institutional investors surveyed believed the office sector will hold the biggest real estate investment opportunities in 2018. The same percentage of investors claimed that the hotel and hospitality industry will hold the biggest opportunities over the next 12 months.