Increasing Deal Activity Expected Through 2013
- Apr 03, 2013
There is a growing mood of optimism in the real estate sector, with 2013 expected to bring increasing activity in traditional and new types of deal flow, according to participants at Ernst & Young’s seventh annual Real Estate Workshop, held in London.
Increasingly positive economic indicators and real estate sentiment polls suggest global deal activity is set to increase in 2013. The real estate professionals attending Ernst & Young’s London Real Estate Workshop were positive about 2013: 86 percent said they were in buying mode — up from 70 percent in 2012. This data also compares well with the 75 percent of respondents to Ernst & Young’s Trend Indicator 2013 who expected transaction volume this year to exceed that of 2012. As for the eurozone debt crisis, 61 percent of conference participants expected this to increase European investors’ activity in the real estate market in 2013.
These positive indicators suggest that, after years of reduced activity, now is the time for action. Strategies for capitalizing on today’s real estate opportunities, wherever they arise, must be firmed up and acted upon.
Although pension funds indicate they can only generate their required returns if they increase their allocations to emerging markets, 67 percent of conference participants did not believe this competition for institutional monies would disadvantage established markets.
London, in particular, is experiencing huge levels of investment, including massive ongoing development around the 2012 Olympic Games site and the £15 billion (U.S.$23 billion) Crossrail project to link east and west London. Recent regulatory relaxation relating to the planning and provision of social housing has been framed to trigger further real estate activity.
While there is strong investor interest in residential property, there are risks attached to huge developments, such as that currently taking place on London’s South Bank.
The way forward could depend on real estate stakeholders taking a more imaginative approach focused on developing not just property, but also a supportive environment where communities can thrive. Focusing on community needs could ultimately provide greater investor comfort and generate higher long-term returns for both developers and investors.
Although high-potential returns make emerging markets extremely attractive to real estate developers and investors, risk management is a concern. From the emerging markets’ perspective, hosting high-profile global events, such as the Olympic Games, should be seen as an opportunity to drive regeneration projects.
A clear majority (57 percent) of real estate professionals attending the conference said they were looking at emerging markets, due to the opportunity to make higher returns than in established markets.
However, emerging markets are also seen as presenting higher risk. When asked about the barriers to investment in emerging markets, 28 percent of conference participants said their risk management committee (or similar body) did not approve of investments in emerging markets, while another 18 percent identified perceived political risks, and 17 percent highlighted perceived corruption risks.
The emerging markets perhaps best placed to overcome perception problems are those exposed to international attention through hosting major global events. With Russia staging the 2014 Winter Olympics at Sochi, and Brazil hosting both the 2014 World Cup and the 2016 Olympics in Rio de Janeiro, interest in these markets will be high. They could also, like London, seek to maximize the benefit of their host status by using the opportunity to regenerate areas that would otherwise struggle to attract investment.