Given the current mix of low interest rates and wall of cash: what is your outlook for European Real Estate over the next 12 – 24 months?
We expect the current strong environment to continue, absent any unforeseen political or macroeconomic shocks, especially in major global cities such as London and Paris. Interest rates appear set to remain lower for even longer and institutions continue to increase their real estate allocations as they seek yield backed by hard assets – both of these trends should be supportive for prime real estate values, particularly in areas of the market where there is real rental growth, such as Central London offices and prime high street retail.
Which countries in Europe will provide the best investment opportunities in 2015, and why?
Oxford is focused on opportunities in major global cities and to date in Europe that has led us to focus on London and Paris. We continue to believe that the long-term returns outlook for both these cities is attractive, although pricing is certainly becoming more expensive. In terms of 2015 focus areas, we continue to look for near-term development opportunities in areas where we forecast significant rental growth outperformance, for example as a result of major infrastructure improvements. We are also seeking to expand our luxury high street retail portfolio. Away from these areas, I think there are still interesting value opportunities in southern Europe, although you need real expertise and risk appetite to unlock them.
Direct vs indirect investing: Is there a clear advantage to either and is finding the right partners creating the most value?
Oxford’s philosophy is to invest directly in areas where we have a competitive advantage, enabling us to manage our assets and capital in the most efficient manner possible. However, we also believe in building long-term partnerships with like-minded co-investors and own a significant portion of our European and global portfolio in joint venture with several of the world’s leading capital and operating partners.
With bank lending still constrained, what significance does alternative lending play?
We continue to see new entrants coming into the European lending market – there is certainly a role for the non-bank lenders to play, be it the insurers, debt funds or other institutions. As a significant borrower in Europe, we have relationships across these different profiles of lenders and believe that it is a very positive development for the market. I expect it will become increasingly important in markets where the banking sector is still in recovery mode, for example in Ireland, Spain and Portugal.
On another note, whom are you looking forward to meet at GRI Europe Summit this year?
The GRI Europe Summit is always a fantastic opportunity to spend time with the major decision makers from across the European real estate investment community, be it the advisors, lenders, principals or investment managers. It will be especially interesting this year to see how people are feeling about Europe relative to the other global regions and whether we meet new attendees who are seeking to enter the European market for the first time.