As any experienced investor will tell you, the surest way to high returns is to diversify your portfolio with a range of assets, including shares, cash and property. With property being one of the best investments you can make, it’s always a good idea to also invest in various European locations.
Despite the still lingering effects of the economic downturn, the property market in Europe is faring well. Just consider that in the first half of 2013, the volume of European commercial property deals reached €66.3bn, which is the strongest first half since 2008. Moreover, the market is expanding to locations which were previously only for the more adventurous.
Investors are always on the hunt for higher returns, testing new locations for good property opportunities to invest in. While traditionally strong locations like Rome, Paris and London have kept their status as prime estate, investors are also adventuring to secondary cities like Hamburg and Hanover in Germany, Milton Keynes and Liverpool in the UK, and Lyon and Nice in France, as well as real estate in economically struggling European countries.
There is increased interest in student housing, budget hotels, logistics spaces like warehouses, as well as car showrooms
The yield in secondary cities when compared to capital cities is much higher. For instance, the average yield on prime office space in London is four per cent, while that in a smaller UK city is about 6.25 per cent. In Lyon, prime office yields are 5.65 per cent, compared with 4.5 per cent in Paris.
There is also increased confidence that those countries which received the worst hits during the economic downturn, such as Spain and Italy, are back on track. In 2013, for instance, Axa Real Estate bought a portfolio of 13 buildings in Barcelona from the Catalan government for €172m – this was Axa’s first property deal in Spain since 2008. Allianz Real Estate invested in two office buildings, one in Milan and one in Rome, where prime office yields have gone up to 5.1 per cent and 5.3 per cent respectively.
Investors are also diversifying their investments. Whereas until a few years ago, office spaces, retail and buy to let properties were considered to be the wisest investments, nowadays, there is increased interest in student housing, budget hotels, logistics spaces like warehouses, as well as car showrooms.
Recently, Global Property Guide published its list of top 20 cities which guarantee the best real estate investments. Intended as a guide for residential property investors, the list was drawn up according to a number of criteria, including affordability, gross rental yield, income tax, long-term GDP growth and long-term appeal to investors.
The list includes some obvious locations, such as London, where property prices will continue to appreciate in the coming years. Paris is also there, although in 20th place, thanks to its low rental costs and high yields. Berlin and Rome are both in the top 10. While Berlin’s strongest point is that it represents the largest economy in Europe, Rome banks on its strong tourist rental market. However, both have their bad points – while Berlin has a pro-tenant rental market, Rome has high round-trip transaction costs.
Up north, Helsinki, Finland is a strong performer thanks to a strong economy, moderate yields and a tenant-neutral rental market. However, the best investments are towards the east. Thanks to Turkey’s rapid economic growth, property in Istanbul is still moderately priced yet has high yields. With its EU association agreement put on a fast track, Moldova is on a high. This is reflected in its property market – property in Chisinau guarantees high yields, even though you will probably have to make your purchases in cash. Sophia, Bulgaria, and Ljubljana, Slovenia, have a similarly pro-landlord rental market while Talinn, Estonia is experiencing strong economic growth.
According to the Global Property Guide, the top three cities for property investments are, in third place Amsterdam, Netherlands, in second place Skopje, Macedonia and in top place, Budapest, Hungary, which benefits from good yields, pro-landlord laws and low to moderate transaction costs. Not to mention plenty of chocolate to sweeten the deal.