Catella: Risk evaluation reveals good investment opportunities in Europe

In the latest Catella Market Tracker “Commercial Real Estate Investments in Europe – Risk Evaluation in Times of Boom and Uncertainty”, an analysis of 28 European real estate locations shows a good basis for long-term yield generation based on the common risk key indicators – risk/yield, volatility and Sharpe ratio.

The analysis of 28 European locations in an office and retail portfolio shows an average total return of 7.95% at the end of 2017.

• The top-5 performers are Dublin (12.1 %), Lyon (10.4 %), Stockholm (10.2 %), Paris (9.9 %), Barcelona (9.8 %) and Marseilles (9.8 %).
• The bottom-6 performers include five German cities: Frankfurt (5.6 %), Hamburg (5.6 %), Cologne (5.7 %), Berlin (5.8 %) and Munich (6.5 %). The sextet is completed by Helsinki, with a historical annual total return of 5.9 %.

For average volatility or standard deviation, the following picture emerges:

• The five German cities (Cologne: 5.0 %, Hamburg: 5.7 %, Frankfurt: 6.8 %, Munich: 7.1 %) and Helsinki (6.2 %) – as underperformers – record the lowest levels of relative volatility.
• Three of the five riskiest cities are found among the top-5 performers: Dublin (21.2 %), Barcelona (12.9 %) and Paris (12.1 %).

When applying the Sharpe ratio – a measure that takes into account both value growth and volatility – the strongest values are attributable to Brussels (1.13), Amsterdam (1.06) and Lille (1.01).

Large-scale investors still believe that major cities are a must-have investment that ought to account for a substantial proportion of their portfolio. “With a view to traditional risk theory and the current conditions on the market, however, this maxim should be viewed with a certain degree of scepticism,” says Dr. Thomas Beyerle, Head of Group Research at Catella. A resulting “naïve” investment using the popular but simplified ABBA strategy is consequentially not an investment recommendation.

View the complete analysis at catella.com/research.

Catella is a leading specialist in property investments, fund management and banking, with operations in 13 European countries. The group has sales of approximately EUR 211million and manages assets of approximately EUR 16 billion. Catella is listed on Nasdaq Stockholm in the Mid Cap segment. Read more at catella.com.

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