For direct real estate real investment 2013 was an excellent year, but what about 2014? Well, we are quite positive and we base our outlook on three factors. Firstly, core assets remain in strong demand as the global rotation into real estate by big pension and sovereign wealth funds is not over yet. Secondly, investors are increasingly buying into the recovery in Europe and in 2013 the market has already broadened. And finally, 2013 saw the first signs of rental growth and with the European economy slowly showing improvement, we believe that growth can be an important theme in 2014.

Aren’t there any risks, what about these rising interest rates? Well, firstly swap rates have already increased by some 110bp in the UK and 50bp in Europe over the last twelve months or so and prime yields have actually come in. We don’t expect this to change much in 2014 with prime yields more or less ending the year where they started or in some cases even moving lower. Firstly, the wall of money will keep pricing competitive and secondly spreads between prime yields and real interest rates are historically high suggesting the real estate market has not priced down to these artificially low bond yields creating a bit of a buffer. And then there is rental growth…

An interesting development of all this could be a huge inflow from US capital, where competition in real estate markets is even fiercer than in Europe and the risk of rate hikes probably higher. And as this capital will arrive in an already competitive and expanding European direct real estate investment market, this would further underpin our positive stance on 2014!