Opportunities in European real estate amid low interest rates
Investors are going for higher-yielding prime property investments in place of low-yielding bonds in Europe, giving rise to potential openings in secondary property assets.
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THE very low level of European interest rates has been the main driver of recovery in European real estate over the last few years, as income-hungry investors substitute higher-yielding prime real estate investments for low-yielding bonds. This has driven up the prices of these assets to such an extent that prime yields in a number of markets are at record lows. However, prime assets are only a small proportion of the total real estate market. While their value has risen quickly, the rest of the market has seen a much slower recovery, creating a significant dichotomy in the market.
This combination of persistently strong but polarised investor demand and the lack of prime space to let has resulted in a larger-than-average spread between prime and secondary rents and yields. This points to potential opportunities to pursue value-add strategies that reposition secondary real estate assets as prime properties.
DYNAMICS DRIVING THE MARKET
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