In this paper, we discuss the structural changes that are presenting challenges and opportunities for real estate globally, where adopting technological and innovation strategies can overcome such challenges.
- Successful strategy implementation should unlock new sources of customer demand, increase space productivity, and improve asset quality
- Real estate investors could thereby benefit from extended investment longevity, added value to their portfolio and more defensive income stream
What are the financial benefits for investors?
- Investor shift towards energy efficiency and emissions regulation accelerating
- Green buildings can exhibit lower systematic risk through more income
- Certified buildings can generate higher distributable income, despite higher operating costs
- Margin discounts offered by active green lenders accretive to overall fund performance
The second edition of M&G Real Estate’s Urban Connectivity report ranks the physical and digital urban transport infrastructure of 64 European cities.
Over the long term, good connectivity benefits property fundamentals by driving occupier demand, boosting rental growth potential, which in turn justifies a lower yield. Find out which cities offer the highest potential risk-adjusted returns, from a connectivity perspective, for the most attractive value.
This paper assesses the potential impact of rising rates on the UK property market. It shows that:
- Gradual transition towards a comparatively lower “new normal” for interest rates
- Relationship between property yields, interest rates and bond yields is nuanced and complex
- Capital values supported by market-specific factors during periods of rising bond yields
- Stock selection and effective asset management to drive rental growth and healthy returns
This report is a deep dive into APAC retail and the macro fundamentals specific to the region driving the sector.
- Key trends influencing change in the retail sector and how e-commerce is set to slow in APAC from its double digit growth trajectory
- Physical retail is underpinned by consumers' social, experiential, convenience and dining out needs
- Active asset management to boost value of assets is crucial in the new retail age
A closer look at the drivers of change in UK retail and how the sector is adapting to evolving consumer needs.
- The proliferation of e-commerce, shifting consumer preferences and retailer cost pressures are drivers of change in retail
- Retailers are innovating to compete, complement and/or diversify from online retail by offering experience or convenience to consumers
- A proactive investment and asset management strategy is required to remain resilient to the rapidly changing sector
This deep dive into European retail explores the structural and macro factors influencing change and how retailers and landlords are maintaining competitiveness.
- Eurozone growth supportive of consumer sentiment pick-up and sustainable household spend
- Europe now the second most popular destination for outbound Chinese tourists
- Retail schemes anchored by luxury, food and big-ticket items best placed to resist e-commerce competition
- Landlords can drive footfall with experience-led retailing
By 2030, the €26 billion Grand Paris project is expected to generate $29 billion of net new money and add 200km to the transport network.
- Paris office submarkets stand to benefit more from the structural changes compared to the CBD
- Saint Denis and Saint Ouen to offer superior returns for a modest risk premium relative to the CBD
Read the Magnify: Grand Paris Project
Latest real estate market outlooks
Economic growth in the Eurozone softened in 2018, but macro tailwinds remain strong, such as Japan and the European Union agreeing to remove tariffs on goods and services. This European real estate market outlook looks at the opportunities emerging across the continent and what we believe will be important to drive returns going forward.
- Emerging submarkets driven by new infrastructure offer bottom-up opportunities
- Defensive qualities of the residential sector creates attractive long-term potential
- Innovative and tourist-driven retail set to remain resilient to online competition
- Transport corridors between Europe and China to open up new investment
Despite the ongoing Brexit-related uncertainty and political upheaval, we expect property income streams to remain mostly resilient. Occupiers are still taking a ‘business as usual’ approach and, while cautious, investors continue to pile into alternatives over mainstream property.
This paper identifies the key trends defining investment opportunities in the UK property market, including:
- Growth in demand for new, flexible living solutions
- Improved occupier outlook for Central London offices
- Structural change continues to boost multi-let industrial
- ‘Experience’ and destination appeal to drive investor demand for retail
Asia Pacific real estate remains resilient despite a challenging macroeconomic backdrop, buoyed by supportive monetary policy as well as the advancement of digital- and knowledge-based economies. This Asia Pacific real estate market outlook highlights the areas of greatest potential returns and their underlying drivers, including:
- Potential higher total returns for logistics supported by E-commerce-driven demand
- High spec offices in demand with the growth of office-based employment
- High demand for multi-family housing underpinned by population growth and the rise of dual-income families
- Prime retail locations in gateway cities to serve as marketing touchpoints as omni-channel retailing becomes more prevalent
Finding the value in European real estate
The accelerating economic recovery in Europe continues and has attracted investment in the region. So, where is the value?
- Broadening economic strength supporting liquidity in real estate markets and rental growth
- Select value opportunities in markets undergoing major structural changes, such as the Grand Paris Project
- Rental growth to be primary driver of returns
The economic upturn is broadening across Europe, while the recovery in economic sentiment continues to filter through to occupier markets.
- The Eurozone outlook for 2018 is one of rude health, with consensus estimates expecting 2.2% growth for the year
- The office sector saw 4% rental growth on average across 23 cities in 2017
- Edge of CBD submarkets offer attractive value for occupiers
- Over 4% rental growth in Nordic industrials markets over next three years
Read the Magnify: European Real Estate Market Outlook
The UK economy has continued to defy gloomy market expectations, providing a supportive macro back drop for the real estate market.
- Progress made on first phase of Brexit negotiations, opening up future UK-EU trade talks
- Central London opportunity in 18-24 months as gradual recovery takes place
- Big ticket deals a key driver of investment, but UK real estate offers a wealth of advantages
Nordic, CEE and Southern European logistics markets offer better potential for attractive returns, according to M&G Real Estate research.
Here at M&G Real Estate, we forecast rental growth for logistics markets across Europe using our analysis of the physical and digital drivers increasing demand for logistics space. This includes infrastructure development across Europe and we reweight the European Commission’s Digital Economy and Society Index (DESI) to just those factors most relevant to logistics. We analyse the most attractive markets in terms of value and long term rental growth prospects.
Looking further afield for opportunities reveals edge of Central Business Districts as offering attractive fundamentals and value.
The recovery in Europe continues to boost employment and the office market. Tight supply has driven rental growth, supporting capital values. Attractive pricing for investors can be found at edge of Central Business District markets, whilst offering affordability for occupiers.