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 KPMG RE-Invest Survey
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 KPMG RE-Invest Survey 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. 4 KPMG RE-Invest Survey
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. 39% 16% Domestic Global Regional 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 North America 35% 32% South East Asia CEE 26% 2 Nordics Japan Russia Latin America 16% 1 10% 10% Oceania Middle East Mainland China 0 20 40 60 80 100 KPMG RE-Invest Survey 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 United Kingdom 42% 45% France United States of America Australia 16% 29% 29% Italy Poland 1 1 Canada Japan Netherlands 10% 10% 10% Belgium Czech Republic Russia Brazil Estonia Finland Ireland Korea Mongolia Sweden 6% 6% 6% 0 10 20 30 40 50 60 70 80 4) 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% Listed property/reits Fund/portfolio secondaries Niche sectors, such as social infrastructure 0% 0% 0 10 20 30 40 50 6 KPMG RE-Invest Survey
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 Others 0% 0 10 20 30 40 50 60 70 6) 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 1 Car parks Data centres Student housing Others 0% 0% 0 10 20 30 40 50 60 70 80 90 7) 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. 8) 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. 81% 19% Yes No 39% Yes No 61% KPMG RE-Invest Survey 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. 42% Yes 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 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 3 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 1 0 10 20 30 40 50 60 8 KPMG RE-Invest Survey
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. 32% Yes 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 Club funds/deals/joint ventures 55% 81% Pooled funds Listed property/reits 2 2 Fund of funds/ multi-manager mandates Others 0% 6% 0 10 20 30 40 50 60 70 80 90 KPMG RE-Invest Survey 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% 6% Debt availability for European real estate investments will contract further during 2014 and 2015. 29% 32% 32% 6% 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. 39% 35% 2 Sovereign Wealth Funds and Global acting big Pension Funds will dominate the European real estate markets over the next five years. 10% 39% 29% 2 0 10 20 30 40 50 60 70 80 90 100 Strongly Agree Agree Neither Agree/Disagree Disagree Strongly Disagree 10 KPMG RE-Invest Survey
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% 45% 32% 1 Reduced costs will be a bigger driver for developing green and sustainable real estate assets than the corporate and social responsibility agenda. 19% 42% 16% 2 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. 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. 1 42% 35% 10% 19% 55% 16% 10% 0 10 20 30 40 50 60 70 80 90 100 Strongly Agree Agree Neither Agree/Disagree Disagree Strongly Disagree KPMG RE-Invest Survey 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 Gunther Liermann Partner, Corporate Finance Real Estate T: +49 69 9587 4023 E: gliermann@kpmg.de 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 Andrea Giuliani Associate Director, Advisory T: +39 06 80 97 1483 E: agiuliani@kpmg.it KPMG in Central and Eastern Europe Andrea Sartori Partner, Head of Real Estate T: +36 1 887 72 15 E: andreasartori@kpmg.com 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 Spain Javier López Torres Partner, Head of Real Estate T: +34 91 451 3020 E: flopez1@kpmg.es Borja Goday Director, Corporate Finance T: +34 914 565 921 E: bgoday@kpmg.es 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 2014 KPMG Holding AG/SA, a Swiss corporation, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss legal entity. All rights reserved. Printed in Switzerland. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.