A new forecast published jointly by the Urban Land Institute (ULI) and PwC has suggested that the European real estate chain is experiencing rapidly changing demands of occupiers and the disruptive forces of technology, demographics, social change and urbanisation.
According to 'Emerging Trends in Real Estate® Europe 2016', ground-level disruptions have led European investor to focus on cities and assets rather than countries. 2016 is expected to harvest investment prospects for Berlin, Hamburg, Dublin, Madrid and Copenhagen in particular, with many respondents expecting the German capital's young population and growing reputation as a technology centre to keep the city on its upward trajectory further into 2016.
"The industry is in transition: it’s more about services than bricks and mortar. One of the most important trends we see is the shift to regional centres, not only at global level, but also in Luxembourg," commented Amaury Evrard, partner and Luxembourg Real Estate and Infrastructure Group Leader at PwC Luxembourg.
Meanwhile, intense urbanisation and long-term demographic shifts have led many experts to place the alternative sectors in the top spots for investment prospects for 2016.
"Investors show more interest in alternative, operational sectors, such as healthcare, hotels, student accommodation and data centres," explained Kees Hage, partner and Global Real Estate Leader at PwC Luxembourg. "In addition, many developers and investors are innovating in an attempt to meet the needs of increasingly informed and demanding occupiers. Participants in the industry are acutely aware of the changing world of real estate, beyond simply the influence of global capital flows. A combination of the disruptive forces in the occupier market, and a long-term, low yield, low growth environment look set to create a much more global competitive market - in which particular skill sets will be needed to access value."
The outlook for the Grand Duchy remains positive, with a stable political environment and one of the lowest government debts of the EU anticipating continued attractiveness for the Luxembourg economy. Luxembourg City has been found similar to big European cities in terms of its players being primarily concerned about the scarcity of prime assets, although it does demonstrate its own specifities.
"We see a strong compression in the office market, which proves its resilience," found John Ravoisin, partner at PwC Luxembourg. "The yield has significantly decreased in the past years, but the scarcity of prime assets around the world has pushed investors to look for new locations. We’ve seen capital coming from the US, from China and India. In terms of prime rent evolution, unlike large surrounding cities like Frankfurt, Paris and Brussels which should remain flat this year, Luxembourg is expected to continue to have a positive pressure on rents mainly due to an increasing demand connected to the fast growth of population."
The alternative sectors, including data centres and satellite offices turn out to be profitable.
“Considering the government’s ambition to massively invest in IT, it’s safe to say data centres will generate value. Another promising sector is satellite offices. Traffic congestions in Luxembourg make stakeholders consider building offices along the border to shorten the distance for their commuting workers," highlighted John Ravoisin.
The report also found that the development of some districts, such as Kirchberg, Hamilius and Cloche d’Or, is likely to influence the evolution of the retail and housing markets in the coming years.
Photo by PwC Luxembourg (L-R: Kees Hage, Partner and Global Real Estate Leader at PwC Luxembourg; Amaury Evrard, associate and Real Estate and Infrastructure Group Leader at PwC Luxembourg; and John Ravoisin, partner at PwC Luxembourg)
