Written By Em

London has fallen out of the top ten best cities in Europe for property investment for the first time since 2012. It is now in 15^th place, due to high house prices and a clampdown on yields.

London No Longer in Top 10 European Cities for Property Investment

The top spot was claimed by Berlin, followed by Hamburg, in the Emerging Trends in Real Estate report from PwC and the Urban Land Institute (ULI). The only British city to appear in the top ten is Birmingham.

The report explains which areas experts believe will be prosperous for property investors. It interviews over 500 developers, investors and property managers within Europe.

These industry experts were asked to rate each city based on investment prospects and their effects on the future of the property market, for both the residential and commercial sectors.

Although London is still the largest investment market for property in Europe, it sits one place behind Istanbul and two below Budapest – despite unstable political situations in both areas.

The Chief Executive of ULI Europe, Lisette van Doorn, explains that Istanbul’s popularity is due to its fast growing population, which creates huge opportunity for investors.

The report assesses intentions of investors, rather than whether actual capital is heading to those markets.

It suggests that London is still the first choice for investors hoping to preserve their wealth.

The Director of Real Estate at PwC, Gareth Lewis, explains: “London is the largest real estate market in Europe. Money tends to plough into it during the harder times, as people are looking for a safe bet, somewhere to keep their money, and as prices go up and yields compress, people looking for better rewards will look to secondary cities.

“And that’s when you see cities like London slide out of the top ten. It’s not a long-term damning of the London market by any stretch of the imagination. It’s just a reflection of where we are in the cycle.”¹

However, one investor claims: “Suddenly everybody is beginning to look to sell. The theory is that the smart Americans are taking their chips off the table and are now looking more to mainland Europe and in particular, parts of Germany and southern Europe, to deploy capital in 2016. The big test for London is how much of this stock will be mopped up.”¹ 

European cities with the best property investment prospects

Birmingham remained in sixth place for the second year running, due to companies starting to move their business there, such as HSBC, the HS2 rail service and its low cost in comparison to London.

One investor states: “I think it is finally proven that Birmingham is attracting employees and employers from London. At several buildings in Birmingham which we own, the tenants have moved people there because it is cheaper.”¹

It is believed that Berlin’s popularity stems from its status as a hub for creative and tech industries, and its high demand for office space.

An international investor says: “All the creative industries are going there; it has got a multitude of different tenant types; it’s dynamic; and it has got new infrastructure coming.”

Another adds: “There is a move from the traditional main driver of take up, the public sector, to IT and tech, which is driving rents. It has a young international employee base and a lower cost of living, which is driving the city forward.”¹ 

The third most active property market in Europe, Paris, was only 22^nd on the list of 28 cities.

An interviewee claims the city is “too expensive” and has problems with “political instability”¹, while another advises investors to “approach Paris with caution”¹.

One trend that the report highlights is the future growth in private rental apartments and other residential investments in London.

Van Doorn says: “We see almost all types of players getting involved, if they are not already, in residential. That is not only in the UK, but across Europe.

“There is an influx of international investment, such as American institutions which are coming into the market of student accommodation. They were seen as alternative assets, and some still are, but they are accepted now as being in the spotlight for the bigger institution lender.

“I think residential is becoming really mainstream as a class, all of it, including retirement living, student housing.”¹

Another important theme that the report emphasises is sustainability and the environment.

The ULI’s Peter Walker states: “It’s clear from the interviews that this is now just part of mainstream language of business in real estate, and it’s not seen as this emerging fad anymore – it’s seen as a core business theme for many.”¹

¹ http://www.pwc.com/gx/en/industries/financial-services/asset-management/emerging-trends-real-estate/europe-2016.html