Yield Targets Reassessed: European real estate investors focus on risk avoidance in late stage of market cycle

Property investors believe the cyclical turning point will soon be reached in European real estate markets. Accordingly, professional investors are increasingly worried about misallocating capital. Yield targets are being reassessed.

The latest investment climate study carried out by Union Investment shows that the majority of real estate investors in Germany, France and the UK expect the initial rate of return on real estate to start rising again in 2019 or 2020. Only a quarter of investment decision-makers believe the real estate market cycle will continue beyond 2021. Of the 163 European property companies polled in the latest Union Investment survey, only 28% said they were prepared to take on more risk in order to achieve the same return. This figure is down a further 9 percentage points compared to the previous survey carried out six months ago. By far the largest proportion of investors, some 64% (winter 2017/18: 56%), plan to stick to their risk strategy and are therefore prepared to accept lower returns.

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