Real Estate Investment in Europe Jeff Rupp Director of Public Affairs Square de Meeûs 23 Brussels
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European Institutional Investments € Trillion 7,535 8,000 7,166 7,000 6,000 5,017 5,000 4,000 3,000 2,000 1,000 0 Real Estate Government Bonds Equity SOURCE: Paul Mitchell Real Estate Consultancy
Institutional Investors • Pension Funds • Insurance Companies • Investment Banks • Sovereign Wealth Funds
Institutional Investors’ Real Estate Portfolios • Direct Investment • Indirect Investment Listed Real Estate Investment Funds Non-Listed Real Estate Investment Funds
Perceived Advantages of Real Estate as an Investment Class • Long-term investments • Lower volatility • Counter-cyclical • Inflation hedge • Income generation • Opportunity to implement ESG policies
Distribution of real estate investments by sector 11% Offices 9% Retail 36% 9% Residential Industrial 35% Hotel, Leisure, healthcare, etc.
Role of real estate investment in: • Job creation: - construction - management - maintenance and renovation - supply - finance and legal - other • GPD growth • Social cohesion
Current Investment Environment • Challenging to obtain adequate return on capital • Regulatory initiatives: - Designed to reduce systemic risk in financial markets and protect investors - However, Solvency II, AIFMD and EMIR will require higher capital reserves and/or will increase the costs associated with investing in real estate
Impact of wave of new regulations - Solvency II, AIFMD and EMIR • Unknown, especially taken together • What we do know - Regulatory impact assessments fail to take adequate account of the regulations’ impact on job creation, GPD growth and social effects
Caution! Lower returns could make real estate a less attractive investment class Less investment Ripple effect through the European economy
A modest proposal for European regulators • Understand the impact of regulations before they are adopted, not after • Engage in a careful cost-benefit analysis – do the benefits of the proposed regulations really outweigh the costs, especially at a time when growth is needed to pull Europe out of the economic and financial malaise?
Conclusion • One thing is clear, capital can deployed globally. Asian and other developing markets, as well as developed markets in North America, are hungry for investment and offer attractive rates of return • Job creation and GDP growth in Europe partially depend on European real estate continuing to be a viable investment class
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