It has been announced that alternative sectors in Europe could have a fruitful future. According to Savills IM, the international real estate investment manager, has seen long term trends related to urbanization and demographics will provide an increase in the alternative segments within Europe’s property market. These alternative sectors include the Private Rented Sector as well as student accommodation, care homes and hospitality.
The main attraction to the alternative sectors of the property market is that there are usually long leases as well as indexed rental uplifts. The alternative market also offers better covenants and the potential to diversify portfolios. It has been revealed that Prime yields are now either at or below 6% and it is hoped that there will be further compression as these markets develop and mature in the future.
Savills IM have announced that they predict that the key sectors they will see strong activity this year includes PRS, automotive hospitality and socio-infrastructure. These markets are expected to see growth in the UK as well as in Germany, France, the Nordics, Spain and the Netherlands. It is believed that the UK has the largest alternative real estate market, estimated at €9.9 billion in 2015. Germany and Sweden follow closest behind the UK with €5.2 billion and €3.5 billion respectively.
However, it is also thought that the rising competition within this market means that the more traditionally markets are out-pricing the investors that are more interested in the higher returns and will accept the high risks involved with such an investment.
As part of their report, Changing Landscape: European Outlook, Savills IM has said that these alternative sectors may attract investors that have strategies for the long term, which can benefit from a stable source of long term income. The report suggests that alternative markets could also provide some challenges for investors including a lower level of transparency.
