The biggest trends in real estate for 2017

09. June 2017 | Drooms

Real estate might seem on the outside like an industry on a stable footing. New buildings are popping up, people are renting and buying, and traditional real estate companies are working away, albeit often online. But under the surface, a seismic shift is taking place. New trends are emerging, some of which could fundamentally alter what real estate looks in the years to come. So, let’s take a closer look at the biggest real estate trends for 2017.

Brexit looms over Europe

The seismic trend in the current environment is undoubtedly Brexit. The overall investor appetite has not necessarily changed in the past month, but uncertainty in the minds of real estate investors has increased. But Brexit isn’t the sole reason the sector is jittery. Indeed, Brexit has been more of a catalyst for European instability – it directly challenged the future of the EU. While the recent elections in France and the Netherlands did essentially stall the populist movement, there is still concern over what the continent will shape up to be post-Brexit. The heightened risk of terrorism and uncertainties in global politics are adding to the worries the sector is experiencing.

In PwC’s Emerging Trends Survey, just under 90% of respondents ranked international political instability as a main concern for the year. The respondents further believed the issue won’t be solved in the short-term, but political instability will continue to influence the sector in the next three to five years.

New opportunities arising from Brexit uncertainty

However, Brexit is not just doom and gloom but there are opportunities it creates in the real estate sector. London and the UK, in general, have held the top market position for a long time, but while investors might be thinking twice about these markets, other cities and countries will benefit. The overall investor mood suggests real estate interest will flow to cities like Amsterdam, Paris, Dublin, Berlin, Frankfurt, Luxembourg and Madrid.

Returns will continue to decline

The year might, unfortunately, be the year of lower returns. Europe’s real estate industry will be suffering from low economic growth and decreased rental growth, which means real estate industry’s returns will decline.

Around two-thirds of the respondents believe the sector won’t outperform this year, with 55% expecting volatile cycles. However, many are still hopeful they will return the same results as the previous year, which has been greeted with some scepticism. One European broker commented this to PwC saying, “Anyone who says they are targeting the same returns as before – good luck.”

But fund managers are not the ones behind the expectations of lower returns. The investors are hoping to find real estate targets that are safe, offer reliable returns and which do not place their capital at risk.

New ways to access the asset class

There will also be enhanced focus on accessing real estate outside of the traditional realms. One of the key changes already has been how residential property has become a focus for institutional investors. Build-to-rent and private rented sector are emerging across the globe and residential portfolios have become more varied.

In 2017, real estate will also be accessed through private debt. Researchers said in the report that “there may be more protection in being a debt investor than an equity investor.”

In terms of the operational targets, the trends point out to hotels, student housing, retirement/assisted living and healthcare as the main targets. The sectors provide much-needed stability and diversification opportunities for investors.

Access over ownership

One of the key trends bubbling under the surface is the change in human behaviours in relation to real estate. The rise of the sharing economy is creating an environment where the focus will increasingly be on access, not ownership. Real estate might be turning into a product and a service, rather than a financial asset.

According to a PwC report for the European Commission, the collaborative economy doubles in the past year and by 2025, it could generate more than €500 billion of annual transactions. The sharing economy impacts real estate in three ways: successful, urban cities allow and enhance human collaboration, scarcity and climate change makes access more cost effective than owning, and demographic and cultural change have created a new market space.

Real estate is going through many changes and 2017 will probably be a mixture of the old and the new. The investors still view real estate as a secure investment asset class, however, the industry itself is starting to break out from its traditional mould.