The map of global real estate investment has changed. After years in which they privileged capital preservation over returns, investors have regained their taste for adventure and are branching out into alternative markets in search of good opportunities.
In particular, many parts of Europe that had thus far been overlooked because of political or economic uncertainty now look set to benefit from this new approach. A study by global real estate consultancy found growing appetite for previously troubled locations such as Dublin and Madrid—where luxury property prices are poised to see strong and moderate growth, respectively—second-tier cities such as Munich, where real estate values are forecast to rise sharply in 2015, and upcoming neighborhoods in established world hubs, including London and Paris.
“Safe-haven investors who might previously have only considered established market neighbourhoods are now looking for new opportunities,” according toKnight Frank’s Head of Research, Liam Bailey. “The relentless march of gentrification and upscaling of neighborhoods in inner urban areas in the world’s leading cities offers opportunities to residents, who can access more affordable alternative options close to central business districts, but most obviously for developers and investors betting on the next new Shoreditch or Meat Packing District.”
Investors believe prices have now bottomed out in Paris and are keen to take advantage of the favourable market conditions. Knight Frank expect the French capital to see moderate price growth next year and tip the 16th arrondissement as one of their ten worldwide markets to watch in 2015 because it is “a safe but buzzing area” where developments are small scale and competition is fierce. Luxury real estate here is up to 22% cheaper than elsewhere in the city, according to the Knight Frank study, making it a mouth-watering opportunity.
But even London, the city that most profited from the global flight to safety in previous years, stand to reap rewards. Although luxury real estate prices are forecast to remain level in the British capital in 2015, the eastern neighborhood of Victoria Park, close to London’s technology hub, provides an interesting investment opportunity, according to Knight Frank. Values have risen strongly in this area, but, with prime homes priced at up to 15% less than in other neighbourhoods, there is scope for further growth, according to analysts.
And even though some of the features that have made residential real estate investment so appealing, such as ultra-low interest rates, and low returns on alternative investments, are likely to begin being removed next year, future prospects for up-and-coming areas are good, according to Bailey. “Our view is that in most centres the return of sustainable economic growth, especially in Europe, means the outlook for the key world centres for 2015 and beyond remains positive.”
Knight Frank’s top ten markets to watch in 2015
1. New York – Williamsburg (Brooklyn)
2. Tokyo Toyosu-Kachidoki bay-area
3. Sydney – Barangaroo
4. Paris – 16th arrondissement
5. Cape Town – Cape Town Central Business District
6. Hong Kong – Kowloon West
7. Singapore, Tiong Bahru
8. Nairobi – Runda and Gigiri