Real estate outlook 2020: Continental Europe

As 2019 comes to a close Vivienne Bolla and Souad Cherfouh look ahead to the key themes that will shape the European real estate markets in 2020 and beyond.

1 minute read

Opportunities in European real estate are being shaped by expectations of a lower-for-longer interest rate environment and downside risks to the growth outlook. In light of this, appetite for good quality real estate backed by sustainable income streams is likely to remain strong. But investors should be cautious about taking exposure to income risk and only deploying intensive asset management or development strategies selectively.

Appetite for good quality real estate backed by sustainable income streams is likely to remain strong

Given the balance of risks, it is appropriate to focus on prime locations over secondary, including those with clusters of talent and value-adding economic activity, and firms able to leverage agglomeration effects. Paris stands out as a magnet for global talent; Stockholm, Berlin, Amsterdam and Copenhagen have world-renowned clusters in digital and biotech fields, while Munich, Frankfurt and Dublin compete globally with vibrant activity in financial, automotive, information and communications technology, media, cultural and creative industries and engineering sectors.

While pricing in prime markets looks high by historical standards, most markets in Europe look attractive on a risk-adjusted basis given the favourable relative pricing implied by low government bond yields. In general, logistics and office markets look more attractive than the retail sector.

Investors increasingly favouring strong assets in the best locations

Most European logistics markets have been boosted by the transition to e-tailing, but the stand-outs appear to be the Randstad, Paris and Copenhagen. Strong occupier markets are likely to drive office performance in Paris, where development constraints suggest scope for sustained rental growth. Prospects in Copenhagen, some German cities, Amsterdam and Lyon also look positive. While there has been less re-pricing of retail assets than in the UK, we expect it to emerge in non-core locations, with investors increasingly favouring strong assets in the best locations.

Looking ahead, we expect more investors to be asking what their real estate allocations can achieve beyond financial returns. Investors are increasingly concerned about the environmental, social and governance (ESG) impact of their investments and searching for opportunities to improve Europe’s infrastructure and deliver a societal benefit. Adopting a long-term, direct-owner mindset is critical.

Want more content like this?

Sign up to receive our AIQ thought leadership content.

This feature is currently unnavailable, please try again later.

Thank you for subscribing to AIQ Investment Thinking.

Please enable JavaScript in your browser in order to view this feature.

I acknowledge that I qualify as a professional client or institutional/qualified investor. By submitting these details, I confirm that I would like to receive thought leadership email updates from Aviva Investors, in addition to any other email subscription I may have with Aviva Investors. You can unsubscribe or tailor your email preferences at any time.

For more information, please visit our Privacy Policy.

Important information

Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (AIGSL) as at December 2019. Unless stated otherwise any views and opinions are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. Information contained herein has been obtained from sources believed to be reliable, but has not been independently verified by Aviva Investors and is not guaranteed to be accurate. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Nothing in this material, including any references to specific securities, assets classes and financial markets is intended to or should be construed as advice or recommendations of any nature. This material is not a recommendation to sell or purchase any investment.

In the UK & Europe this material has been prepared and issued by AIGSL, registered in England No.1151805. Registered Office: St. Helen’s, 1 Undershaft, London, EC3P 3DQ. Authorised and regulated in the UK by the Financial Conduct Authority. In France, Aviva Investors France is a portfolio management company approved by the French Authority “Autorité des Marchés Financiers”, under n° GP 97-114, a limited liability company with Board of Directors and Supervisory Board, having a share capital of 17 793 700 euros, whose registered office is located at 14 rue Roquépine, 75008 Paris and registered in the Paris Company Register under n° 335 133 229. In Switzerland, this document is issued by Aviva Investors Schweiz GmbH, authorised by FINMA as a distributor of collective investment schemes.

In Singapore, this material is being circulated by way of an arrangement with Aviva Investors Asia Pte. Limited (AIAPL) for distribution to institutional investors only. Please note that AIAPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIAPL in respect of any matters arising from, or in connection with, this material.  AIAPL, a company incorporated under the laws of Singapore with registration number 200813519W, holds a valid Capital Markets Services Licence to carry out fund management activities issued under the Securities and Futures Act (Singapore Statute Cap. 289) and Asian Exempt Financial Adviser for the purposes of the Financial Advisers Act (Singapore Statute Cap.110). Registered Office: 1 Raffles Quay, #27-13 South Tower, Singapore 048583. In Australia, this material is being circulated by way of an arrangement with Aviva Investors Pacific Pty Ltd (AIPPL) for distribution to wholesale investors only. Please note that AIPPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIPPL in respect of any matters arising from, or in connection with, this material. AIPPL, a company incorporated under the laws of Australia with Australian Business No. 87 153 200 278 and Australian Company No. 153 200 278, holds an Australian Financial Services License (AFSL 411458) issued by the Australian Securities and Investments Commission. Business Address: Level 30, Collins Place, 35 Collins Street, Melbourne, Vic 3000, Australia.

The name “Aviva Investors” as used in this material refers to the global organization of affiliated asset management businesses operating under the Aviva Investors name. Each Aviva investors’ affiliate is a subsidiary of Aviva plc, a publicly- traded multi-national financial services company headquartered in the United Kingdom. Aviva Investors Canada, Inc. (“AIC”) is located in Toronto and is registered with the Ontario Securities Commission (“OSC”) as a Portfolio Manager, an Exempt Market Dealer, and a Commodity Trading Manager. Aviva Investors Americas LLC is a federally registered investment advisor with the U.S. Securities and Exchange Commission. Aviva Investors Americas is also a commodity trading advisor (“CTA”) registered with the Commodity Futures Trading Commission (“CFTC”), and is a member of the National Futures Association (“NFA”).  AIA’s Form ADV Part 2A, which provides background information about the firm and its business practices, is available upon written request to: Compliance Department, 225 West Wacker Drive, Suite 2250, Chicago, IL 60606.

Related views