UK tops list of European countries for attractiveness in real estate investment and transactions in 2014, EY survey finds

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  • The UK, together with Germany, is seen as the most attractive European country amongst investors
  • 2014 could see IPOs and equity capital increase
  • Transaction activity forecast to increase considerably

LONDON, 14 January 2014 – The UK is seen as the most attractive market for investment in real estate when compared with other European countries, according to the results of EY’s Real Estate Indicator 2014 published today.

Of the 500 investors in real estate assets surveyed, across 15 European countries, the UK is viewed, together with Germany, as an attractive or very attractive market for real estate investment by almost all survey participants (98%).

Transaction activity in the UK is also set to be on the rise, with 87% of respondents forecasting a considerable increase in 2014.  More than eight out of ten of investors surveyed, believe that capital markets are expected to be even more attractive for real estate IPOs and equity capital increases than last year

Rishi Bhuchar, a Partner in EY’s real estate corporate finance team said: “At a time of turbulence and volatility in most European economies, the results of this year’s trend indicator show that, more than ever, stability and security play a big role in influencing investment decisions. It is because of those two factors that the UK market continues to enjoy the vote of confidence by investors. “

Real estate transactions market

Investment is once again expected to be increasingly focused on value-added and opportunistic strategies (85%). At the same time, 77% of investors point to an increase in the number of portfolio deals in the commercial real estate sector and 74% expect the average deal size to increase in 2014.

Most active buyer and seller groups

Insurance companies are expected to be the strongest buyer group with 89% of respondents agreeing that they will be the source of moderate activity, while residential real estate companies (86%) and well as opportunity/PE funds are expected to be amongst the most active sellers in 2014. On the other hand, investors expect banks to play a less active role as a buyer in the real estate market this year.

The level of equity required by debt providers, as well as the price mismatch between buyers and suppliers are cited as significant barriers to transactions.

Looking ahead: the impact of the digital world

The world’s ongoing digitalisation appears to benefit industrial real estate with 54% of the respondents expecting increased demand for space. E-commerce suppliers emerging as tenants (69%) is expected to have the most positive impact on demand for space. The majority of respondents (52%) expect brokers to see a drop in market share for renting because of internet listing services.

Bhuchar concludes: “The effect of the rise of the digital world and e-commerce will increasingly be felt by the sector in 2014. Respondents in most countries believe brokers will lose market share for renting or selling residential real estate to internet listing services. The majority of investors see e-commerce as a major threat to retail stores in less popular locations, while most of the respondents also expect e-commerce suppliers to rent retail locations in order to increase brand awareness. In the UK, the most negative impact anticipated is that online stores might replace physical stores (69%), at least in weak locations.”