Rapidly changing demands of occupiers and the disruptive forces of technology, demographics, social change, and rapid urbanisation are permeating the European real estate value chain, according to the “Emerging Trends in Real Estate® Europe 2016”, a forecast published jointly by the Urban Land Institute (ULI) and PwC. “The industry is in transition: it’s more about services than bricks and mortar. One of the most important trends we see is the shift to regional centres, not only at global level, but also in Luxembourg”, says Amaury Evrard, partner and Luxembourg Real Estate and Infrastructure Group Leader at PwC Luxembourg. 

Alternatives become mainstream

According to the report, ground-level disruptions have led European investors to focus on cities and assets rather than countries. The five leading cities for investment prospects in 2016 are Berlin, Hamburg, Dublin, Madrid and Copenhagen. Many respondents back the German capital to continue its positive momentum and thrive well beyond 2016, based on its young population and its growing reputation as a technology centre.

The alternative sectors take top spots in the ranking of investment prospects for 2016. Kees Hage, partner and Global Real Estate Leader at PwC Luxembourg, explains this trend through the intense urbanisation and long-term demographic shifts. “Investors show more interest in alternative, operational sectors, such as healthcare, hotels, student accommodation and data centres. In addition, many developers and investors are innovating in an attempt to meet the needs of increasingly informed and demanding occupiers. Participants in the industry are acutely aware of the changing world of real estate, beyond simply the influence of global capital flows. A combination of the disruptive forces in the occupier market, and a long-term, low yield, low growth environment look set to create a much more global competitive market - in which particular skill sets will be needed to access value.”

Luxembourg: a positive outlook for 2016

With a stable political environment and one of the lowest government debts in the EU, Luxembourg’s economy is strong enough to keep attracting investors. Luxembourg City follows the trends of big European cities, with players mostly concerned about the scarcity of prime assets, but it has its own specificities.

“We see a strong compression in the office market, which proves its resilience. The yield has significantly decreased in the past years, but the scarcity of prime assets around the world has pushed investors to look for new locations. We’ve seen capital coming from the US, from China and India. In terms of prime rent evolution, unlike large surrounding cities like Frankfurt, Paris and Brussels which should remain flat this year, Luxembourg is expected to continue to have a positive pressure on rents mainly due to an increasing demand connected to the fast growth of population”, says John Ravoisin, partner at PwC Luxembourg.

The alternative sectors, including data centres and satellite offices turn out to be profitable. “Considering the government’s ambition to massively invest in IT, it’s safe to say data centres will generate value. Another promising sector is satellite offices. Traffic congestions in Luxembourg make stakeholders consider building offices along the border to shorten the distance for their commuting workers”, highlights John Ravoisin.

The development of some districts, such as Kirchberg, Hamilius and Cloche d’Or, is likely to influence the evolution of the retail and housing markets in the coming years.

The report “Emerging Trends in Real Estate® Europe 2016” is available for download on PwC Luxembourg’s website.