The competition for prime assets in Europe’s major real estate markets is leading investors to turn to recovering markets such as Ireland and Spain, regional cities and secondary property in search of returns, according to Emerging Trends in Real Estate Europe 2014, a forecast published jointly by the Urban Land Institute (ULI) and PwC.

Emerging Trends in Real Estate Europe 2014 finds that 71% of respondents think that a shortage of suitable assets for acquisition will have a moderate or significant impact on their business during 2014. As a result of this increasing competition, 59% per cent of respondents believe that prime property in Europe’s core markets has now become over-priced.

The report highlights that investors are becoming increasingly comfortable with taking more risk in search of returns. One of the biggest beneficiaries of this is Dublin, which has risen dramatically in the city investment rankings, moving up from 20th in last year’s report to second in 2014. Dublin’s real estate market has been transformed from a “no-go” location among investors only two years ago, to being one of the hottest markets in Europe, with both domestic and international investors attracted by pricing levels and Ireland’s improving economic outlook. The report finds that 51% of respondents now see good buying opportunities in Ireland.      

The weight of international capital is leading investors to also turn to other recovering markets, such as Spain. The report highlights that 67% of respondents believe that there are now good buying opportunities in Spain, with the acquisition of the Parque Principado mall in Oviedo by Intu and the Canadian Pension Plan Investment Board for €162 million highlighted as an indicator of mainstream interest in the market. However, sceptics argue that debt is very hard to attain and that it is a risky market to invest in before there are signs of any growth.

The competition for core assets has also led to an increase in investors looking beyond prime assets in major European markets such as London, Munich and Paris, and instead buying solid income producing assets in secondary cities. For example, office investors in Munich can achieve yields of approximately 4%, but those willing to invest in smaller German markets such as Stuttgart can achieve up to 6.5%. Investors are also looking to acquire secondary properties in major markets, which have good existing income streams or which, with careful asset management, could be transformed into core assets.

An interesting consequence of the “Battle for Assets” is that investors are increasingly considering development as a way of adding high quality assets to their portfolios. The report demonstrates that 71% of respondents believe that development is an attractive way to acquire prime property.

“As for the Romanian real-estate market, we expect a slight increase in transactions, especially in the office segment, but much less interest for the retail, industrial and residential”, stated Francesca Postolache, Director, Assurance Services, Real-Estate team leader.

The report highlights that there will be significant capital available in Europe’s real estate markets during 2014 with 71% of respondents believing there will be an increase in equity for refinancing or new investment this year. Although some of the equity will be domestic, significant investment is expected to continue to flow from sovereign wealth funds, especially those based in Asia. Nearly 80% of respondents believe that capital from Asia Pacific will increase during 2014, with 67% of respondents believing that capital from The Americas will increase this year.    

Emerging Trends in Real Estate Europe is a joint report published annually since 2003 by the Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC). The report provides an outlook on European real estate investment and development trends, real estate finance and capital markets, as well as trends by property sector and geographical area. It is based on the opinions of more than 500 internationally renowned real estate professionals, including investors, developers, lenders, agents and consultants.

The Urban Land Institute is a global non-profit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide.  Established in 1936, the Institute has nearly 30,000 members representing all aspects of land use and development disciplines.