A new era in opportunistic property investment is opening up in Europe, according to Joe Valente, head of research and strategy at JP Morgan Asset Management. 'This time, returns will not be driven by financial engineering, but by the ability of the manager to add value and de-risk assets,' he said.
Valente made the comments following the publication of a new report by the asset manager which highlights how real estate market conditions, the macro economy, capital scarcity and apprehensive investors have created a new profile and opportunity set for European property investment.
The report estimates that the investment universe for opportunistic investors comprises EUR 250 bn of real assets that will be placed on the market over the next three years. This contrasts with EUR 60 bn of investment capital waiting to enter the market, a ratio of 4:1 across the region.
However, the balance between investment stock and available capital varies widely, with a ratio of 6:1 in the UK but well over 20:1 in Spain, Italy and the Netherlands.
The report points out that, for the past three years, the economic turmoil in Europe has resulted in extreme risk aversion on the part of investors. 'As a result, there is now a whole swathe of institutional assets in good locations which are being entirely mispriced as secondary.'
Moreover, the latest evidence from the banking sector shows that the major banks are finally becoming more realistic about valuation and pricing and that this new realism is now creating the basis for a new wave of disposals. This stock includes good quality assets in strong locations whose minor impairments are capable of being rectified by an injection of capital and/or active management, the report concluded.
'There is now a very strong case for investors to be looking at the European market in order to take advantage of the mispricing of risk and the massive deleveraging that will take place in the next few years,' noted Peter Reilly, head of real estate Europe in JP Morgan Asset Management’s Global Real Assets Group.