Posted on April 29, 2016
Sandy Mooneeapen, Director, Property Insurance Initiatives Limited examines the European territories identified as likely targets for property investment in 2016 and the challenges these present in terms of insurance risks.
Despite the investment from overseas, predominantly from the Middle East and Asian Sovereign Wealth Funds driving the price of core assets upwards, London still remains a popular property investment target. This applies to core assets as well as development opportunities. In 2016 it is expected that other cities such as Copenhagen, Hamburg and Berlin are most likely to join London as key territories in Europe for property investment.
The expansion of the property market in these cities causes Pii to consider the risk that each area poses. Many of our clients are acquiring property in these growth areas, and although they offer a wealth of opportunity, they are also burdened with flood risks that investors must be aware of.
Copenhagen, one of Scandinavia’s prime areas for real estate investment, comes with a growing flood risk. Scandinavia as a whole has benefitted from rising investment activity, but it is Copenhagen in particular that has seen a surge in growth, and it is here where floods have been most prevalent. Following significant flooding in August 2010 there was up to approximately €1billion of damage (insured losses) across the city. As a result, the city’s politicians and authorities devised a cloudburst management plan, to protect against further incidences. However, further high value damage as a result of flood incidents occurred again in August 2014, when violent overnight thunderstorms sent the city into disarray.
Growth hotspots Berlin and Hamburg also suffer a high exposure to flood risk, as they are located in one of the country’s most exposed areas in the northern region of Germany. Whilst ‘stormsurge’ activity is rare here, it remains a threat, however general flood risks are a more common occurrence. In June 2013, over €12billion of damage was caused by a flood that affected much of Northern Germany.
With regard to London, investment continues to pour in to the capital. Concurrently, recent flood damage has been well-documented, with parts of the city frequently deluged with heavy rainfall. It is not surprising that London has been so badly affected by flooding, as the UK in general is experiencing a flooding issue, and London is built on the banks of a large, tidal river.
And things don’t look set to improve. A new report from the European Environment Agency claims floods in Europe will cause five times more damage by 2050. Copenhagen, Berlin, and Hamburg, alongside London, must therefore be considered high insurance risks. Prepare accordingly!