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London named the second best city for property investment in Europe

Investors, developers, lenders and advisers have tipped London as a go-to destination for property investment and development potential in 2021.

Prospects for real estate and investment opportunities in the capital city for 2021 have seen significant improvement, says the latest Emerging Trends in Real Estate report from PricewaterhouseCoopers and the Urban Land Institute. The data shows England’s capital has jumped two places in this year’s estimations.

This puts this city in second place overall across Europe’s major cities, with Berlin taking the top position. Much of the report unsurprisingly focuses on the way coronavirus has affected the real estate sector. However, on a long-term basis, it describes the likes of London, Berlin and Paris as “stalwarts”. These cities, says the report, offer the best of both liquidity and stability.

Accelerating existing trends

One of the major findings of the report is around the acceleration of pre-existing trends. While Covid has been “game-changing”, the industry has adapted well because some of these shifts had already begun to occur.

Digitalisation is one aspect that has featured heavily in the recent pandemic. The industry was already undergoing big leaps towards more automated, technology-focused processes. Now, though, it has become a necessity for many, and is impacting investor preferences.

Lisette van Doorn, CEO of ULI Europe, said: “European real estate is at a turning point, trying to work out its future role in society while facing the cyclical challenges following the outbreak of the pandemic earlier this year and the ongoing uncertainty this creates.

“COVID-19 has fast-forwarded a number of trends already started, for example related to digitalisation, remote work and online shopping, but given the artificial environment amidst ongoing lockdowns and government support to employees and businesses, it remains hard to work out the long-term impact.”

“The search for yield, which is now even more dominant than pre-COVID, continues to attract investors to real estate, especially core and income-generating, such as residential that continues to appeal to investors, in the ‘safest havens’ across Europe.”

Investors look for stability in uncertain times

Logistics and housing have benefited in some ways from recent events, says the report. Demand in these areas has been relatively stable. This is another reason why the capital city  ranks highly among investors right now, thanks to the UK’s strong economy compared to other areas.

Many investors are re-examining the historical risk and return profiles of different types of property investment. This is according to Gareth Lewis, real estate director at PwC UK.

“It’s clear that, at this time of significant uncertainty investors continue to see Europe’s core cities as safer bets and there remains cautious optimism. With London jumping up two places to second in the rankings – despite the challenges faced by all major cities – many investors see the long-term value.

He adds that the low interest rate environment is also a positive for many investors. It means there could be an uptick in activity as people deploy their pent-up capital over the coming months.

Moving away from office investment

There has been an unprecedented rise in the number of people working remotely over the course of 2020. While it is difficult to say how this will play out over the long term, the report says this is a big influencing factor on how people are choosing to invest.

The data shows that residential property investment remains “highly favoured” by investors. In a ranking of the top 10 sectors for investment in 2021, there are three representing residential. These were private rented housing (ranking in 7th position overall), affordable housing in 8th place and social housing at number 10.

The report notes that no office sectors made it into the top 10 list this year. Flexible and serviced office space and co-working has also suffered in the ratings. Time will tell whether these areas become more important again in the future.

You can read the full report here.

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