Property Week – And so it begins: outlook on the investment year ahead

In the media

This is the period during which we typically source and execute all transactions with our partners whether in UK, Europe or USA for the investment year running from September to June. Consequently, it seems like a good moment to pause and reflect on market conditions and likely investor outlook.

For some, the summer can be a ‘quiet’ period – but not for 90 North have concluded many deals including the recent sale of the Rudolph Logistics depot in Volksmarsen in Germany for €52m as well as other properties in Norway and UK.

Looking forward to the year ahead, the global ‘hunt for yield’ – or more particularly the ‘hunt for security and yield’ – continues to drive our markets.

This is due to ongoing uncertainty (and fear) caused by a whole range of geopolitical issues.

These include worries over North Korea, conflicts in the Middle East, a fractious political climate, freak weather incidents and, of course, stubbornly low oil prices and the unwinding of quantitative easing which are both making investors nervous. Global debt remains a huge concern too.

As at the end of June 2017, the amount of investment in negative-yielding sovereign debt stood at $9.5trn – down on a year ago, but still an enormous figure.

The consequence of these factors, plus high transactional costs at the purchase and exit of an asset, has led to many investors, quite rightly, holding onto high quality assets, unless purchase offers are compelling.

This has led to a reduction of quality stock, particularly in the UK. With demand for income producing property assets as strong as ever, the result has been higher prices and falling cap rates/yields, even for some secondary assets. This trend is particularly evident in London, although regional pricing is also materially tighter than last year.

We at 90 North remain cautious and, as material co-investors in all our projects, particularly focused on the fundamentals. But I must say, by contrast I am regularly shocked at some key participants’ (both investors and asset managers) weak market and property knowledge – particularly in regards to how various market sectors are evolving and how operational/business dynamics are impacting, and will continue to impact, on values.

So let the year begin – but our underlying approach (and the basis on which we present new transactions to our partners) will continue to be very meticulous and focused on fundamentals – even at a time when other market participants are potentially throwing caution to the wind.