Investment Trusts

How to invest in Europe’s winning cities

With the UK’s deadline to leave the European Union fast approaching and a deal yet to be agreed, investors may be tempted to look further afield for income and diversification opportunities.

17/03/2019

Jeff O'Dwyer

Jeff O'Dwyer

European Investment Manager

With the UK’s deadline to leave the European Union fast approaching and a deal yet to be agreed, investors may be tempted to look further afield for income and diversification opportunities.

In contrast to the UK’s commercial property market, which is shrouded by Brexit uncertainty, a number of cities across Europe currently offer investors exciting growth prospects.

Jeff O’Dwyer describes Berlin, Hamburg, Frankfurt, Stuttgart and Paris as “winning cities”. He believes they have the potential to grow 25 per cent to 35 per cent faster than their domestic economies, buoyed by a number of positive dynamics. These include infrastructure improvements, employment growth, urbanisation and tourism. 

What’s more, a number of these cities are already benefiting from banks moving teams out of London as a result of Brexit.

“We believe these cities constitute the top tier growth regions,” Mr O’Dwyer says.

“Our focus is on locations where rents are low and sustainable, where there is competing demand for uses and supply is constrained. We seek out assets with a high number of tenants, longer unexpired lease terms, and high rates of occupancy as these offer attractive income prospects.” explains Mr O’Dwyer.

“Active property management can also help to increase returns.” Mr O’Dwyer adds, citing an example of a retail warehouse in Berlin which has the potential to deliver significantly higher returns if it developed. “The big attraction here is that we are sitting on four hectares of land. Surrounding this asset is medium density residential and offices. We believe we can add value once we get vacant possession.”

The fund manager adds that the team’s overall intention is to “sweat the assets, not the balance sheet.”

“European real estate fundamentals remain sound. Office rental growth remains above trend, driven by growth in office employment and record low vacancy rates. It’s important to have a robust portfolio which can deliver a sustainable income. Portfolios should be diversified and exposed to cities you think will grow faster than their domestic economies,” Mr O’Dwyer concludes.

Past Performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.  Exchange rate changes may cause the value of any overseas investments to rise or fall.

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