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The real estate investment industry in Europe is booming. In recent years, it has seen record levels of cash being ploughed into the market, much of it emanating from Asian investors looking to secure core assets in some of the regions most admired cities. A by-product of this newfound obsession with property in prestigious locations, such as London, Paris and Milan, is that it has helped fuel a rapid rise in the market’s overall value and, fortunately for all those involved, it is a trend that shows little signs of slowing, with many industry experts anticipating even more cash finding its way into the region over the next 12 months.
Though the European real estate market has benefitted from a hefty increase in foreign investment, it would be wrong to assume that it arrived here by sheer chance. The sector has helped itself significantly in securing capital from abroad by greatly increasing levels of market transparency, as well as making general improvements to how it is regulated. The upshot of such developments in oversight has been a bolstering of investor confidence, with many now seeing the sector as a smart and secure investment alternative. New tools to support transparency, such as performance indices, investment guidelines and associations to bring the industry together, as well as other key regulatory changes, have all played a significant role in helping the real estate market in Europe continue its momentous rise in value.
[I]nvestment flows are less regional, and more global
One company that has its finger on the pulse of the European property market is CBRE Global Investors, with an impressive market share that comprises of more than $33.7bn (€26.7bn) of assets under its management (as per 30 September 2014), spanning 17 countries across the region. With the European property market set to hit record volumes this year, World Finance checked in with Pieter Hendrikse, CEO EMEA of CBRE Global Investors to find out what else is in store for Europe’s flourishing real estate market and how his company plans to meet the demands of its clients.
How does the real estate investment industry differ in the various regions in which you operate?
We see significant changes in the maturity of the market by region. European institutional investors have been investing outside of their domestic markets for decades, whereas Asian investors have only started to expand their investment horizons significantly to an international one in the last five to 10 years. This means that in Europe, most investors that commit to real estate have an allocation of approximately seven to 10 percent of their overall investment portfolio, but for other regions this percentage is still growing.
Lastly, what we have seen since the recovery of the crisis is that investment flows are less regional, and more global. There is a certain layer of institutional investors that are more and more becoming global players, with a wide scope and allocation model.
What trends are being seen in the real estate and wider investment market in Europe?
While funds played a major role in the business pre-financial crisis, we now see that institutional investors want more control by investing directly into real estate, often via joint venture and separate accounts.
The requirements from clients to have separate account structures is related to challenges that funds experienced during the crisis where investors were confronted with a lack of control and a lack of liquidity.
Through our separate accounts, we serve the same type of clients and investment capital but in a more direct way, on a one-to-one basis. We also offer joint ventures, club deals and multi-manager programmes in addition to funds and fund of funds programmes. Everybody still has the choice and we are still active in the same regions with the same strategies and form of execution.
This has not meant the end of funds as these have also evolved to meet investors’ requirements and the lessons learnt by fund managers through the crisis.
How is it likely to look in the future?
In many ways, the property market has started from scratch again, given the new market circumstances and we have noticed that the allocation models have changed as well. There is much more discipline in the market and less reliance on debt.
We’re seeing new lenders, new sources of capital and supply, and we are able to accommodate different strategies in multiple geographies and sectors with specific risk-return requirements.
What impact are new regulations having on the industry?
Regulations are necessary, and will help the industry to become more transparent, but as an industry, we are looking for a balance as regulation can be to some extent take away entrepreneurial freedom at a time that investors are becoming increasingly critical about how fund managers act.
We can’t afford to make mistakes in the new market environment, to provide lower quality management solutions or to drift away from the strategy and discipline. As an investment manager, you are looking to offer the right balance of caution and entrepreneurial spirit.
What key investment trends are there in the wider, global real estate markets?
Emerging investors, in particular those from Asia and sovereign wealth funds, are making an impact on the global investment industry. These emerging sources of capital are strong enough to bring a new level of competition to the markets and filled an equity gap following the crisis so are taken very seriously as new players. They have the funds to make these decisions, and also scalability: most of these investors are of such a size that they can make a significant investment independently, without having to pool up with other investors.
These players tend to be looking for core real estate in their first moves in new markets. They often choose to invest into landmark buildings or other top assets within their asset classes, limiting risk, but providing a stable income. This has meant they are strong competition to existing investors who have returned to the market looking for core investments, particularly in Europe where the economies were still in crisis.
What products does CBRE Global Investors offer?
We offer access to a true European real estate platform; we have offered a pan-European approach for almost 20 years though our country offices. We have now opened up our European structure and are moving away from a country-specific approach to a pan-European one. That strategy has already started to bear fruit. We’re seeing a serious inflow of capital, from the US, Asia and the Middle East.
CBRE Global Investors is now profiling itself as a broader investment manager with a mixed offering of structured investment vehicles, separate accounts and global multi-manager mandates. We’ve emerged healthy out of the crisis despite some of the risks. Some of our fund vehicles have experienced pain, but that was due more to the market cycle than to the intrinsic quality of the assets.
After the merger, we spent time revising and renewing our company strategy in EMEA; we looked at what we had, what we had to do and what we would like to do. That is all behind us now. We have survived and have moved through the storm. We have made a big and serious transition in terms of integration and formulating a new strategy, culture and policy in the middle of the stress of the crisis and during the liquidation of some of our funds.
How has the company developed since its founding?
Since the merger with CBRE Group it has allowed us to grow a truly integrated company. We are now backed by a firm that purely focuses on real estate as its core business and this has given us the competitive advantage of a complete offering of real estate services globally. The platform for CBRE Global Investors also became truly global and we can offer clients a joined up service for their domestic and international requirements.
How does CBRE Global Investors stand out in a competitive market?
Our differentiators are that ability to handle global or pan-regional relationships with clients so they can comfortably invest outside their own borders, and our on-the-ground property expertise giving us local insight and knowledge to make the best investments of their behalf. Our scale also means we have the capacity to adapt to changing investor requirements.
What is CBRE Global Investors’ long-term strategy and what are its key focuses for development?
After being a net seller in the last couple of years due to maturing funds, CBRE Global Investors is a net buyer again. It is our strategy to be an active asset manager and not an asset collector and it is our goal to materialise returns. We have introduced new strategies to grow our business again, and we aim for a balanced mix between separate accounts and pooled funds.
