As we have seen with the examples of management above, beyond the choice of the country or countries in which to invest, the sector is also crucial and needs to be adapted to your investment strategy and your risk aversion.
Many international real estate consultancies present you 10 key sectors to invest in Europe according to your profile: core investors (who are looking for a safe investment with a high return) or value-added investors (who are looking for a riskier investment but with great value opportunities). Combining core and value-added investments, of course, seems to be ideal. Then you determine the share of riskier and higher-paying assets and the share of assets that is safer and provides less return that suits you best. Do not forget that an investment in a European SCPI involves specific risks: migrant crisis, impact on the flow of people between borders, separatist tendencies, possible pressure from Russia on certain territories, political elections marked by the rise of parts of extremes, etc.
The 5 sectors to favor for core investors
Core investors favor real estate complexes located in a very good location, with tenants of first rank, long-term firm leases (between 9 and 15 years) and no significant work to be expected. They are looking for a hyper-secure return and generally invest in these assets in heritage (long term) via investment funds.
Shopping centers in big cities: in cities that are experiencing strong growth in their population and draining major tourist flows (Berlin, London, Madrid and Milan for example), the main shopping centers will remain attractive.
“Green” offices in “smart cities”: flexible and sustainable buildings in dynamic or “smart” cities (such as Berlin, Dublin, Stockholm, Barcelona, Madrid or Warsaw) will become increasingly attractive, and should thereby register a steady increase in their rents.
Pan-European e-commerce logistics buildings: European e-commerce, which is expected to exceed the 300 billion euro mark generated by the Center for Retail Research in 2018, as well as future innovations in the retail sector, should lead to increased demand for warehouses and distribution networks. Large urban areas such as London, Madrid and Paris should benefit from the growth of this new market.
Properties located in the best shopping streets of the tourist cities: the big European cities are particularly frequented by foreign visitors. Milan, Paris, Madrid, Amsterdam and London remain major tourist centers because of their cultural attractions that attract high-income tourists. They will therefore remain popular destinations for international brands.
Student housing to cope with the increase in the number of international students: besides the fact that student housing in the United Kingdom, Germany, France, the Netherlands and Spain has become in recent years an asset class, the housing shortage and the many future constructions offer new investment opportunities.
The 5 sectors to favor for investors add value
Investors add value is looking for great opportunities for value creation. They therefore usually invest in assets with a high vacancy rate and a technical obsolescence requiring significant work.
Healthcare institutions: in Europe, the aging of the population is leading to a growing need for institutions for the elderly, particularly in markets with very well-off populations, as is the case in France and Germany. Beware, however, the decline in the purchasing power of retirees and the crisis experienced by EHPAD could destabilize the sector.
Offices in Central and Eastern Europe: Western companies seek to bring their back office closer to their location, while benefiting from lower salary and real estate costs than in the country where their head office is located. Poland, Hungary, Romania and Slovakia should therefore be successful and represent a real potential for investors.