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A roller-coaster ride would be an apt way of describing how the global economic and geopolitical landscape has impacted various industries over the past 12 to 18 months, and in this context the real estate space has certainly been no exception. The uncertain and unpredictable nature of the sector – exemplified by the challenges posed by US protectionism, the spectre of Brexit, interest rate risks, exchange rate volatility, the weakening of Latin American currencies and the sluggishness of the eurozone – has caused furrowed brows for many real estate investment managers, resulting in tempered confidence and a less rosy outlook.

UNITED STATES

Brian L. Sedlak

Jones Day

“During the last 12-18 months, foreign investment in the US has continued to aid the market. Despite a slowdown in the Chinese economy and the uncertain political climates in the US and UK, there is still abundant capital flowing to investments in the US. Multi-family continues to be very busy as the general trend toward renting instead of owning remains strong and will likely continue in a rising interest rate market. In addition, we continue to see changes in the real estate market due to the shifting retail economy.”

MEXICO

Ángel Dominguez de Pedro

Hogan Lovells

“Without a doubt, 2016 was one of the most complicated years for the real estate sector in general. Nevertheless, the construction sector, particularly the housing branch, maintained its growth. In addition to the constant growth of the housing branch during the past few years, 2016 distinguished itself due to the growth of the productive construction branch composed by commercial, offices and industrial constructions. In this regard, commercial and office construction remained at good levels, but industrial construction experienced the greatest growth. One issue that gained relevance at the end of 2016 was the apparent capital gain of real estate properties, mainly of the housing branch.”

BRAZIL

Rodrigo de Castro

Veirano Advogados

“With the end of the adjustment period of Law 13,097/2015, which took place on 20 February 2017, the so-called ‘Concentration Principle’ has become fully effective. The Principle is active in terms of real estate transactions and the acquisition of real property or other related in rem rights by a third party in good faith. Under the Principle, these transactions can no longer be challenged and nullified, in the event that someone applies for such prior ownership due to previous judicial proceedings that have not been previously registered in the property record at the time of the acquisition.”

UNITED KINGDOM

Jonathon Wilkes

Stephenson Harwood

“2016 was a roller-coaster year. It taught us three things: expect the unexpected, keep your nerve and trust your judgement. Even before the Brexit vote the market looked fully valued. Then the unexpected result on 23 June created a tremor; there was talk of values falling by 20 percent and many open ended funds suspended redemptions, sensibly waiting for the dust to settle. Transactions did dry up temporarily and we had to hold our nerve, but we remained confident in the overall strength of the market. Even at the time, we felt the question was not one of ‘if’ but ‘when’ the market would return and it soon transpired that that confidence was well founded.”

SPAIN

Jesús Conde

Araoz & Rueda

“The Spanish real estate sector over the past 12-18 months has experienced a significant change, from a market mainly focused on opportunistic transactions, either regarding assets of NPLs, based on the need for many financial entities to get rid of their major portfolios arising from the credit crunch back in 2008-2011, to a more stabilised environment where long and mid-term transactions are the main target of investors. Further, real estate development is again an area of interest and products like care homes and student accommodation are attracting new players.”

PORTUGAL

Filipa Arantes Pedroso

Morais Leitão, Galvão Teles, Soares Da Silva

“2016 was another excellent year for the Portuguese real estate market, with a volume of transactions in excess of the levels recorded in 2015 and similar to the volume of transactions seen in the pre-crisis days. As in 2015, the main investors were foreign funds and family offices from the US, France, the UK and Spain. The main transactions in the retail area were Sonae, which sold portfolios of supermarkets and Algarve Shopping which sold office buildings to various foreign investors. The demand for quality offices is becoming higher than the available offer.”

LUXEMBOURG

Michael Hornsby

EY Luxembourg

“Over the last few months, we have seen evidence that we may potentially be reaching the end of a market cycle in terms of capital flowing into European real estate with transaction volume falling off. Expressed in numbers, the European funds market has experienced a 10 percent drop in transaction volume between 2015 and 2016, a leading indicator of this downturn. The dominant source of this capital flowing into Europe is now coming in from Asia whose investors are driving yield compression, especially in prime assets. Demand for core assets is still very strong in Europe as institutional investors chase stable income yield.”

ITALY

Simone Monesi

Osborne Clarke

“The market has been comparatively buoyant compared to previous years. In 2016, real estate investments increased by 12 percent over 2015 and investment in Italy represented 3.6 percent of all European investments, up from 3.0 percent in 2015. Investment remained heavily focused on the two main market places, Milan and Rome, which, together, account for 53 percent of all investments in the country. Of the two main markets, Milan attracted 35 percent of the investment, Rome 18 percent. Foreign investors have been particularly active. In 2016, investment by foreign players soared back to the pre-2008 levels of €5.5bn, representing about 60 percent of aggregate investments in the sector.”

SOUTH AFRICA

Gawie Kolbé

KPMG

“Although the real estate sector experienced declining returns over the past 12 months, the sector remained resilient with ungeared total returns of around 11 percent in 2016, down from around 13 percent in 2015. Net operating income has come under increased pressure in a weak economic environment, as political instability and policy uncertainty are not generating an environment for growth. The search for yield offshore continued as good quality properties are becoming harder to find in South Africa. Geographical diversification of risk has remained a top priority for large real estate players.”

CONTRIBUTORS

Araoz & Rueda

EY Luxembourg

Hogan Lovells

Jones Day

KPMG

Morais Leitão, Galvão Teles, Soares Da Silva

Osborne Clarke

Stephenson Harwood

Veirano Advogados