KPMG Real Estate Invest Survey

KPMG Real Estate
Invest Survey −
An outlook for 2014
kpmg.com/realestate
Impressum
Designed by Evalueserve
Publication name: KPMG Real Estate Invest Survey
Publication Date: March 2014
kpmgpublications@kpmg.com
2 | K P M G R E - I n v es t S u r v e y
Content
Overview.......................................................................................................................................................................... 4
About the survey............................................................................................................................................................... 4
A Questions
1)
Are you pursuing a global, regional or
domestic investment strategy?................................................................................................................................. 5
2)
Which regions/markets offer the best opportunities today?....................................................................................... 5
3)
Name four countries that offer the best real estate
investment opportunity today ................................................................................................................................... 6
4)
Which of the following strategies offer the
best investment opportunity?.................................................................................................................................... 6
5)
What parts of the real estate market are you targeting?............................................................................................ 7
6)
What property types are you most interested in?...................................................................................................... 7
7)
Are you planning to increase your real estate
exposure in the next 12 months?.............................................................................................................................. 7
8)
Are you investing in real estate as part of
a wider real assets strategy?..................................................................................................................................... 7
9)
Are you investing in real estate debt?........................................................................................................................ 8
10) Where does real estate debt fit into a multi-asset portfolio?...................................................................................... 8
11) Where are the best debt investment opportunities?................................................................................................. 8
12) Will debt strategies become a much more significant
part of institutional real estate portfolios in the future?.............................................................................................. 9
13) Which of the following structures
do you employ for real estate investments?.............................................................................................................. 9
B Hypotheses
14) Europe as a major investment hub...........................................................................................................................10
15) Shift in the European real estate market...................................................................................................................11
K P M G R E - I n v es t S u r v e y | 3
Overview
The global real estate market showed signs of resurgence over 2012–13, aided by slowly, yet surely, improving
economic conditions and enhanced liquidity. What is the outlook for 2014? KPMG RE-Invest Survey 2014 shows that
investment in real estate is on the upswing. Real estate may well be on its way to emerging as a stand-alone major
asset class in a diversified portfolio, as investors are now seeking to reduce their exposure to traditional portfolios
comprising of only bonds and equities.
We highlight here a few of the key trends revealed by the survey:
• In line with the results of last year’s survey, investors are optimistic about increasing their exposure to real estate,
with 81% respondents sharing plans in support of real estate investment. This trend will be supported by improved
economic stability and debt availability, encouraged by an improving capital market. In corroboration, 90%
respondents agree that the European core markets will remain investment hot-spots over the next five years, aided
by debt availability and the emergence of sovereign wealth funds and globally-operating pension funds.
• Investors are now more willing to capitalize on undervalued or distressed assets, as confidence returns to the global
economy. A total of 42% respondents are focusing on opportunistic strategies as the best investment opportunity, as
compared with 32% last year. At the same time, conservative investment opportunities are also picking up pace, with
35% respondents considering core real estate as the best investment strategy.
• Surprisingly, investors’ preference for how to invest changed dramatically from last year; 81% now prefer direct
holdings/separate account mandates, up from 41% last year. In addition, investor preference for club funds, deals, or
joint ventures, has increased from 35% last year to 55% this year.
• In terms of region, Western Europe continues to attract the maximum number of investors, owing to stable economic
conditions and a strengthening debt market. Besides France, Spain, and the UK, Germany is another mature market
preferred by investors and it leads the investment destination pool. A pent-up demand for real estate is also seen
across the US, which is considered a sought-after investment destination by 29% respondents. This trend is in line
with that of last year, when respondents saw New York as a major investment destination, second only to London.
• The European real estate market is expected to see consolidation due to regulations such as the Alternative
Investment Fund Managers Directive (AIFMD), and the existing Basel III and Solvency II directives.
We believe that stabilisation of the debt condition, supported by sovereign wealth funds and globally-operating pension
funds, will lead to an increase in global real estate investment over the next few years. We will continue to monitor the
trends and bring you the right information at the right time, enabling you to make the right decision for your portfolio.
About the survey
KPMG RE-Invest Survey, now in its third year, has been designed as a preamble to the annual RE-Invest Summit, to
be held at Cannes this year. KPMG and MIPIM RE-Invest have conducted this survey, as part of which select investors
replied to 15 questions, sharing their assessment of the global real estate investment environment and popular
investment strategies for 2014. With its incisively designed structure and astute questions, the survey gathers the market sentiment and empowers
investors by providing strategic insights into the global real estate investment scenario.
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KPMG RE-Invest Survey
A Questions
1)
Are you pursuing a global, regional or domestic investment strategy?
The survey identified three investment preferences among investors – Domestic (investing in their own country),
Regional (investing in specific economic regions) and Global (investing in different countries/regions). While Global and
Regional are pegged as popular investment strategies, very few respondents seemed keen to limit their opportunities to
their domestic markets.
Domestic
Global
39%
Regional
16%
45%
2)
Which regions/markets offer the best opportunities today?
The survey showed a strong positive bias towards real estate investment in Western Europe, with 81% respondents
confident that it offers better opportunities than Southern Europe (second at 35%), North America (third at 32%) and
South East Asia (fourth at 26%).
Western Europe
81%
Southern Europe
35%
North America
32%
South East Asia
26%
CEE
23%
Nordics
16%
Japan
13%
Russia
10%
Latin America
10%
Oceania
3%
Middle East
3%
Mainland China
3%
0
20
40
60
80
100
K P M G R E - I n v es t S u r v e y | 5
3)Name four countries that offer the best real estate investment opportunity today
Germany continues to outperform, with 71% respondents considering it a prime investment destination. Spain is also
gradually catching up with the European core markets (UK, Germany and France). France and the US are next in line,
posting an equal number of votes at 29% each.
Germany
71%
Spain
45%
United Kingdom
42%
France
29%
United States
of America
29%
Australia
16%
Italy
13%
Poland
13%
Canada
10%
Japan
10%
Netherlands
10%
Belgium
6%
Czech Republic
6%
Russia
6%
Brazil
3%
Estonia
3%
Finland
3%
Ireland
3%
Korea
3%
Mongolia
3%
Sweden
3%
0
4)
10
20
40
30
50
60
70
80
Which of the following strategies offer the best investment opportunity?
Investment in real estate debt is continuously showing a downward trend, with only 10% respondents terming it as the
best investment opportunity, significantly down from 21% last year. Investors are increasingly adopting opportunistic
strategies, up from 32% last year to 42% this year, thereby investing in high-quality undervalued assets to bank on the
gains of strong market revival in the future. However, an increase in preference for core real estate as an investment
opportunity to 35%,from 29% last year, reflects that conservatism continues to exist.
Opportunistic
strategies
42%
Core real estate
35%
Emerging markets
10%
Real estate debt
10%
3%
Listed property/REITs
Fund/portfolio
secondaries
0%
Niche sectors, such as
social infrastructure
0%
0
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10
20
30
40
50
5)
What parts of the real estate market are you targeting?
Investors appear to be shying away from prime or trophy properties, mainly due to high cost and low yield. Nearly an
equal number of investors prefer core assets and core-plus assets, as compared with 67% core asset investment
preference in last year’s survey.
Core-plus; good
quality secondary
68%
Core
61%
Prime/trophy
29%
Other secondary
26%
Tertiary
3%
0%
Others
10
0
6)
20
30
40
50
60
What property types are you most interested in?
The spectrum of investable property has widened to include car parks and student housing. Office property remains the
most popular option, with 81% respondents preferring it, while 65% showed an interest in retail property.
Office
81%
Retail
65%
Hotels
32%
Residential
26%
Industrial/logistics
26%
Healthcare/retirement
13%
Car parks
3%
Data centres
3%
Student housing
0%
Others
0%
0
7)
70
10
20
30
Are you planning to increase your real estate
exposure in the next 12 months?
Following the incumbent trend, investors are expected
to increase their investment in alternative assets,
including real estate, with 81% expressing interest in
doing so.
19%
81%
40
8)
50
60
80
90
Are you investing in real estate as part of a wider real
assets strategy?
The survey shows 61% respondents saying “no” to
investing in real estate as a part of their wider real
assets strategy. As mentioned earlier, real estate may
well be on its way to emerging as a stand-alone major
asset class in a diversified portfolio.
Yes
No
70
Yes
39%
No
61%
K P M G R E - I n v es t S u r v e y | 7
9)
Are you investing in real estate debt?
Last year, respondents were split 50/50 over whether debt investments offered better risk-adjusted returns than
traditional real estate (equity) investments. There is some amount of apprehension this year, with 58% respondents
showing a lack of interest in investing in real estate debt.
Yes
42%
No
58%
10) Where does real estate debt fit into a multi-asset portfolio?
Real estate asset classes include investments in both real estate debt and equity. A total of 71% respondents believe
that any investment in real estate debt will be categorised under real estate rather than in any other fixed income
category.
Real estate
71%
Fixed income
26%
Other
3%
0
10
20
30
40
50
60
70
80
11) Where are the best debt investment opportunities?
There was a significant shift toward senior debt investment, which went from 33% last year to 52% this year. The preference
for mezzanine debt decreased to 35% from 40% last year, indicating a trend of risk aversion, particularly in debt, with a
cautious outlook on volatile markets.
Senior
52%
Mezzanine
35%
Whole
loans
13%
0
8 | K P M G R E - I n v es t S u r v e y
10
20
30
40
50
60
12) Will debt strategies become a much more significant part of institutional real estate portfolios in the future?
Investors continue to express a growing consensus that debt strategies will become a significant part of real estate
portfolios; 68% respondents believe that it will play a bigger role, as against 62% last year.
Yes
32%
No
68%
13) Which of the following structures do you employ for real estate investments?
Direct holding or separate account mandates emerged as the preferred investment structure, with 81% respondents
preferring this compared with 41% last year. The preference for club funds/deals/joint ventures also increased from 18%
in 2013 to 55% this year.
Direct holdings/separate
account mandates
81%
Club funds/deals/joint
ventures
55%
Pooled funds
23%
Listed property/REITs
23%
Fund of funds/
multi-manager mandates
Others
6%
0%
0
10
20
30
40
50
60
70
80
90
K P M G R E - I n v es t S u r v e y | 9
B Hypotheses
14) Europe as a major investment hub
With second-tier European markets, such as Spain and Italy, regaining economic stability, most respondents agree
that risk-averse investors will continue to consider Europe a major investment hub over the next five years. This is
encouraged by a gradual improvement in the debt scenario across Europe and a growing interest from sovereign wealth
funds and pension funds.
European core markets will remain industry hot spots
in the next 5 years and attract overseas investments
while the European 2nd tier markets: Ireland, Spain,
Italy and Portugal will become focus of international
real estate capital flows in 2014 and 2015.
90%
3%
Debt availability for European real
estate investments will contract
further during 2014 and 2015.
29%
New entrants to the European debt markets,
such as Insurance companies and PE houses,
will not be able to replace traditional debt
providers leading to further contraction of debt
availability for real estate investments.
10%
0
Strongly Agree
10 | K P M G R E - I n v es t S u r v e y
32%
32%
39%
Sovereign Wealth Funds and Global acting big
Pension Funds will dominate the European real
estate markets over the next five years.
Agree
6%
35%
39%
10
20
30
Neither Agree/Disagree
6%
23%
29%
40
50
Disagree
60
3%
23%
70
80
Strongly Disagree
90
100
15) Shift in the European real estate market
The survey results indicate that respondents expect a systemic shift in the European real estate market. There will be a
significant increase in compliance costs, particularly for private fund managers, following the emergence of regulations
such as the Alternative Investment Fund Managers Directive (AIFMD). The finance market is already affected by the
Basel III and Solvency II directives, which make raising money a challenge. Owing to this, 45% respondents believe that
European real estate fund managers will witness increased consolidation and operation optimisation.
The increasing regulatory and compliance
burden will trigger real estate fund manager
consolidation in Europe.
10%
Reduced costs will be a bigger driver for developing
green and sustainable real estate assets than the
corporate and social responsibility agenda.
19%
Access to data will drive new sources of revenues for
the European real estate industry over the next five
years and data management will become a major
USP for asset managers over the next five years.
32%
42%
13%
Driven by increasing transparency, regulation and
compliance requirements the real estate industry
will need to invest significantly in systems and
procedures over the next five years.
42%
Agree
10
30
Neither Agree/Disagree
23%
35%
55%
20
13%
16%
19%
0
Strongly Agree
45%
40
10%
16%
50
Disagree
60
70
80
10%
90
100
Strongly Disagree
K P M G R E - I n v es t S u r v e y | 11
Contacts
KPMG Europe
Stefan Pfister
Partner, Head of
Real Estate Europe/EMA
T: +41 58 249 54 16
E: stefanpfister@kpmg.com
KPMG in Italy
Maurizio Nitrati
Partner, Head of Building,
Construction & Real Estate
T: +39 06 80 97 1480
E: mnitrati@kpmg.it
KPMG in Russia
Sven Osmers
Director, Head of
Real Estate
T: + 7 495 663 8497
E: svenosmers@kpmg.com
KPMG in Germany
Sven Andersen
Partner, Real Estate M&A
T: +49 69 9587 4973
E: sandersen@kpmg.de
Andrea Giuliani
Associate Director,
Advisory
T: +39 06 80 97 1483
E: agiuliani@kpmg.it
KPMG in Spain
Javier López Torres
Partner, Head of Real Estate
T: +34 91 451 3020
E: flopez1@kpmg.es
Gunther Liermann
Partner, Corporate Finance
Real Estate
T: +49 69 9587 4023
E: gliermann@kpmg.de
KPMG in Central and
Eastern Europe
Andrea Sartori
Partner, Head of
Real Estate
T: +36 1 887 72 15
E: andreasartori@kpmg.com
Borja Goday
Director, Corporate Finance
T: +34 914 565 921
E: bgoday@kpmg.es
Jürgen Paskert
Partner, Audit Real Estate
T: +49 89 28644 5158
E: jpaskert@kpmg.de
Stefan Schmidt
Partner, FS Tax Real Estate
T: +49 69 9587 2160
E: stefanschmidt@kpmg.de
KPMG in France
Régis Chemouny
Partner
T: +33 1 5568 6818
E: rchemouny@kpmg.fr
Mark Wyatt
Partner, Country Head
Corporate Finance
T: + 33 1 5568 9300
E: markwyatt@kpmg.fr
KPMG in Luxembourg
Pierre Kreemer
Partner, Head of
Real Estate & Infrastructure
T: +35 2 22 5151 55 02
E: pierre.kreemer@kpmg.lu
KPMG in Finland
Teemu Haataja
Manager, Head of Real
Estate and Construction
Sector Services
T: +35 8207 6036 44
E: teemu.haataja@kpmg.fi
KPMG in Netherlands
Hans Grönloh
Partner, Head of
Real Estate the Netherlands
T: +31 20 656 7792
E: gronloh.hans@kpmg.nl
KPMG in Sweden
Björn Flink
Partner, Head of Real Estate
T: +46 8 7239 482
E: bjorn.flink@kpmg.se
KPMG in Switzerland
Ulrich Prien
Partner, Head of Real Estate
T: +41 58 249 62 72
E: uprien@kpmg.com
KPMG in UK
Richard White
Partner, Head of Real Estate
T: +44 20 7311 4010
E: richard.white@kpmg.co.uk
Stephen Barter
Director, Chairman of UK Real
Estate Advisory
T: +44 20 7694 1906
E: stephen.barter@kpmg.co.uk
kpmg.com/realestate
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