With over 150 delegates in attendance, INREV’s North American Conference in New York early October brought together experienced, thought-provoking panelists who shared fascinating and practical insights on the latest trends in European non-listed real estate investment. This year, focus fell on the hot topic of environmental, social and governance (ESG) criteria.
Risk Vs Reward
It was felt that Europe-based fund managers and investors have driven the ESG conversation over the past five years, but US managers are now more practical on the topic. It was mentioned that not only are potential investors looking for ESG-focused investments, but more and more potential tenants are actively favouring ESG-friendly buildings as consumer mindset evolves.
Student accommodation was cited as an asset class with a strong ESG focus. In this space, Europe is seen as the key emerging market and a region that keeps on giving. The last two years have established Germany and Spain as priority markets and there is a sense that Italy, Portugal, France and the Nordics – as well as Canada – could be next.
There are almost 500,000 students in London and 150,000 students in Paris, and analysis shows that their wellbeing needs to be high on the agenda of fund managers; a recent Red Brick survey found that 80% of students feel their accommodation has a direct impact.
Student accommodation was cited as an asset class with a strong ESG focus
However, there is big debate around the cost of ESG and expected percentage return for investors. It was asserted that some investors are willing to give up a degree of ROI in order to invest in ESG-friendly products, but many felt that this would vary by location.
Where to next for European investing?
The ongoing uncertainty over Brexit has started to show a slowdown in investor demand for UK real estate and rising demand for the continental equivalent. There is currently US$3.2 trillion invested in real estate across Europe, 22% of which is invested in the UK. With the Eurozone currently experiencing a decade-low unemployment rate of 7.5% and a low cost of debt, it was felt by the audience that real estate investment in the Eurozone has potential to grow at the expense of the UK.
However, with Europe currently reporting 10 years of low returns for investors and a move away from commercial units, there is a drive towards finding better- performing alternatives – such as student accommodation. In particular, those assets more likely to stand up against evolving regulations, placing ever-greater emphasis on eco- friendliness, social impact and exemplary governance.
This article was contributed by Neil Synnott, IQ-EQ