Mortgages and real estate remain attractive asset classes for institutional investors, especially now that the economy is picking up and interest rates are expected to remain low. In the retail market, increased initial yields and lower rent levels are creating interesting investment opportunities at the best locations. This is what Syntrus Achmea Real Estate & Finance writes in the Outlook 2022 - 2024 published today.
"The uncertain Covid-19 period is hopefully behind us," says Jos Sentel, Manager Strategy & Research. "Most mortgage and real estate markets have proven to be robust. A positive economic outlook ensures that consumer spending and user demand remain buoyant. At the same time, monetary policy ensures that interest rates remain low and the attractiveness of mortgage and real estate investments high. Investors are asking for more customisation and flexibility. Investing with impact is also gaining in importance."
The mortgage market was hardly affected by the pandemic. The number of arrears has remained limited and demand is high, especially from refiners. The likelihood of rapid interest rate increases is small, as a result of which the margins for mortgages remain stable. Sentel: "In our view, a good economic outlook justifies relatively more investments with a loan-to-value ratio above 60 percent. We also see that ESG is high on the agenda among mortgage investors."
Large shortage of homes
On the housing market, the demand for affordable rental homes remains high. In the non-regulated sector, there is a large shortage of homes, particularly in the mid-range segment (750 to about 1100 euros). Acquisition opportunities for institutional investors are scarce. Rising construction costs and increasing competition between investors are also causing lower initial yields. "Nevertheless, the resulting risk-return profile does not make investing in residential property any less attractive," says Sentel.
Healthcare real estate is also in demand among domestic and foreign investors. This cannot be seen in isolation from the demographic outlook (ageing population) and the corresponding demand for healthcare real estate in the various segments of 'cure' and 'care'. Competition and the lagging supply of future-proof care real estate ensure permanently high prices and lower yields. Healthcare real estate has definitely outgrown its niche status.
Shopping areas are becoming more compact
Retail investments have felt the adverse effects of the Covid-19 pandemic heavily, especially due to the lockdowns. Rental income has partly disappeared and structural trends such as a shrinking retail stock and increasing online spending have accelerated. Sentel: "The other side of the coin is that shopping areas are now becoming more compact. Increased yields and lower rents now provide attractive investment opportunities in the best locations."
Even after Covid-19, urbanisation continues and the need for densification increases further. Mixing functions in buildings (mixed use) ensures better use of scarce space in city centres and offers flexibility and synergy benefits for users and investors. "Mixed-use locations are characterised by a strong identity and offer investors diversification and opportunities for alternative uses that have an impact," says Sentel.
Learn more? Please see our Outlook 2022 - 2024