Despite the torpor, self-inflicted pain, failure of political leadership and rather anemic outlook for Europe's economy, the European real estate market has continued to attract substantial amounts of capital from both European and global sources. However, investors have gravitated to the most core of core properties and markets amid the uncertainty.
While investors are right in doubting the robustness and credibility of current policy there is, at the same time, increasing clarity regarding the source and nature of the opportunity in the region's real estate market.
Investors waiting to underwrite a full-blown recovery in the region will simply miss the opportunity currently unfolding in the region:
- The market has moved into a position where investors are being rewarded for the additional risk associated with the opportunistic segment of the market, the first time this has happened in a good number of years.
- There is clear evidence that banks and other distressed sellers have begun to take a more realistic position on valuation and pricing to the point where the bid-ask spread in the opportunistic market has narrowed to the point where deals are capable of being executed.
- While a new phase of opportunistic investment has taken hold in the region, it is a phase that is dramatically different from anything seen before. The lack of growth expected in the market and the general lack of debt in the foreseeable future place the emphasis squarely on the abilities of the asset manager to drive investment returns. Asset managers with the requisite mix of financial and operational skills are few and far between and, as a result, command a significant competitive advantage in this new market.