Schroder Real Estate Investment Management officials downplayed skepticism about the upswing in the commercial property market in the United Kingdom and across Europe in a press conference in Seoul on June 12.
“There is a lot of discussion in Europe about how close we are to the top of the cycle,” said Mark Callender, head of real estate research at Schroder. “But that is kind of magical thinking.”
Schroder Real Estate head of Real Estate Research Mark Callender speaks at a press conference in Seoul (Schroder Real Estate)
[INTERVIEW] Forex hedging, diversification behind Korean investments in EU realty market
His comments sought to address rising doubts that the commercial realty cycle in major cities of the UK is about to slump, coupled with uncertainties such as Brexit and fears of an economic downturn.
According to data by PMA and Schroders, prime office building values in London have been on a steady decline since 2015, after riding regular upswings and downswings every nine years since the 1980s -- peaking in 1988, 1997, 2006 and 2015. Meanwhile in Frankfurt, the value of prime office buildings peaked in 1991, 2001 and 2007 and is now on an upswing.
Callender said there is no such thing as a uniform cycle that represents the European commercial property market as a whole. Instead, he stressed investors need to catch up with the ongoing divergence in the market and address the advent of new technologies, which would have implications for the commercial realty market.
“There is more than one real estate cycle,” he noted. “We have simultaneously seen various sectors moving in different directions.”
For example, in office buildings, software firms focused on voice recognition will replace call centers and expert systems will reduce demand for back office space and administrative staff, which would eventually increase the property value. Also in industrial warehouses, automated facilities have led to higher values.
In the meantime, technologies would pose a drag on the value of retail properties due to growing online penetration in Europe.
Over the past 1 1/2 years, the value of logistics properties has increased by 12 percent in the UK and continental Europe, according to Callender. In contrast, as for the retail sector, values have fallen already by 10 percent in the UK while there are signs of such a fall in France and Germany.
South Korea is home to institutional investors and investment banks that have increasingly turned their attention to European prime buildings for alternative investments.
As of last year, Korean investments in Europe’s commercial real estate market jumped nearly sixfold over the past five years to 7.3 billion euros ($8.2 billion), according to Cushman & Wakefield. Over 40 percent of Korean investments in European commercial properties went to the UK in 2018.
By Son Ji-hyoung (email@example.com)