Regional centres across Europe begin to dominate

Nery Alaev writes about regional centres in Europe.

As major property centres begin to overheat and saturate, smaller ‘regional’ centres across Europe are beginning to shine, according to new research.

Regional powerhouses?

I’ve written before about the strength of regional cities for real estate investment – in a UK context however.

Lyon, a ‚regional centre‘ mentioned in the report

This new round of research, carried out by Triuva and reported by Europe Real Estate, indicates a similar pattern of regional strength across Europe.

Commenting on this Dr Georg Pfleiderer, head of research at Triuva, says:

“International property investors in particular often focus on the major European retail locations such as Paris, London and Milan.

In doing so, they all too often overlook the more than five hundred regional centres with over 100,000 inhabitants – just think of Lyon or Salzburg, for example.”

He goes on to add:

“Sales in regional centres averaged €9.5bn in the past decade, around twice as much as in the major cities.

European regional centres’ status as real hidden champions is reflected, among other things, in the fact that prime yields are still a good 40 basis points higher than in 2007. The spread compared to the major cities is as high as 140 basis points.”

This statement implies that there is a definite strength in regional centres as ‘hidden gems’ for investors. While they may not produce high yields on their own like their larger cousins, regional centres together have potential to guarantee good returns for investors.

Fluctuating development

While regional centres have good potential for investment, rent ‘development’ is often quite disparate in regional cities – one potential weakness.

This means that differences in rent rates (whether positive or negative) can be quite severe. One example used in Europe Real Estate article is Innsbruck, Germany with an increase of 10% – sharp compared to differences in larger centres that can often fluctuate between single percentage points.

This feature is something to be aware of when investing in regional centres.

Nery Alaev

Nery Alaev is the current Director of ESN Investments GmbH, which engages in acquisition and development of commercial and residential property in Germany and Austria.