European real estate assets to grow at a slower pace in 2020

This article was written and published in Spanish and has been translated into English via Google Translate. Click here to read the original article.

The estimates included in the market are that the net value of the properties - offices, homes or shopping centers, among others - will continue to grow in 2020, although it will do so at the slowest rate seen in the European sector since 2012, that is, a 5, 8% And it will be even lower, 3.9% in 2021.

How much more can you grow in a cycle that is already mature in itself? This is the question that the European real estate sector must answer in the face of 2020. "The profitability of prime [premium] assets would be at a minimum if it were not for the expectation that there will be a greater compression of yields [profitability of real estate, in jargon]" in the face of interest rates at a minimum, see the annual report of CBRE, one of the giants of real estate consulting worldwide, which recognizes that it is "very complicated" to find attractive returns in Europe. And in the absence of incentives to buy for the so-called community socimis, their asset portfolios tend to grow less and less.

The estimates included in the market are that the net value of the properties - offices, homes or shopping centers, among others - will continue to grow in 2020, although it will do so at the slowest rate seen in the European sector since 2012, that is, a 5, 8% And it will be even lower, 3.9% in 2021. Seven years ago, Spain was one of the epicenters of the debt crisis of peripheral countries. What is not a novelty is that the value of the sector's portfolio grows to a single digit, because it has been doing so since 2018 - with an increase of 6.4% compared to 2017 and was 7.3% last year.

Colonial, at the head

Where are the two great Spanish socimis in this context? Overturned in the prime office sector - mainly Colonial Real Estate -, the consensus foresees a 5% growth in NAV per share for Merlin Properties this year - at 15.56 euros, when trading 18% below, at 12.7 Euros- and 5.8% by 2020.

Colonial will grow, according to analysts, triple this year, up to 15%, which shows a net asset per title of 11.21 euros; and the increase will be moderated to 9% in 2020. The Catalan socimi - exposed to three markets: Paris, Madrid and Barcelona - is one of the few that does not quote at a discount with respect to the liquidation value of its portfolio of assets.

The punishment of the stock market comes from afar. According to manager Janus Henderson, the real estate sector globally has traded below its NAV since 2007, at which time the financial crisis broke out, except for specific moments in 2012 and 2016.

"The ECB's ultra-expansive monetary policy will extend over time the great moment of the sector with compressed yields [yields], moderately rising incomes and unbeatable financing conditions," said Bankinter, who recommends "exposure to reits in France and Portugal; avoid the United Kingdom before Brexit, Germany, before the freezing of the rent, and also the retail for the effect of electronic commerce."

Head Offices

Following the explanatory statement, it is understandable that the European companies dedicated to investing in the office sector are the ones that will lead the biggest growth in 2020 of their property portfolios. But we must take into account more factors in terms of the nationality of companies. The first, the British reits are affected not only by Brexit. Among them dominate the listed companies dedicated to retail and shopping centers, which has led the crisis of the American mall (large establishments). In Germany the new legislation to cover the rental price worries investors. And in countries like France or Spain the impact of an economic slowdown in 2020 can lead to real estate problems, because it is a very sensitive sector to the cycle.

The assets of the large office reits will increase by 9.1% next year compared to the current one and this is the highest percentage from a sector point of view. The only socimi (among the 20 most capitalized) dedicated to the management of student residences, the British Unite Group, is also leading the way with an expected growth of its 9% real estate portfolio in 2020. "Specific assets as technology centers, nursing homes or students will see a compression of yields in the face of the search for investors of higher returns "that no longer offer the classic assets, recognizes CBRE.

Moreover, a study prepared by

British consultancy Hodes Weill & Associates argues that, for the sixth consecutive year, "investment in real estate assets in Europe will rise again in the portfolios of investors - up to 10.6% -", because investors are still pressured by returns in negative of fixed income.

First year of fall in 'retail'

The third largest growth is expected from residential socimis - such as Vonovia and Deutsche Wohnen in Germany; the Gecina gala and the British Segro. It is expected at 8% in 2020. While companies for which retail or shopping centers account for a majority of their portfolios will continue to see their NAV fall; specifically, 2.9% planned for 2020.

The market continues to distrust its business model in the face of online disruption. And this also affects the giant Unibail-Rodamco, which already this year will star in a fall in the value of its shopping centers.

This article was written and published in Spanish and has been translated into English via Google Translate. Click here to read the original article.

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