Emerging Trends in Real Estate - Europe 2008
A joint undertaking of the Urban Land Institute (ULI) and PricewaterhouseCoopers, Emerging Trends in Real Estate Europe is a trends and forecast publication now in its fifth edition. The report provides an outlook on European real estate investment and development trends, real estate finance and capital markets, property sectors, metropolitan areas, and other real estate issues.
In 2008, Emerging Trends Europe participants expect the European
real estate market to be a complicated three-speed process.
Corrections to the west, stabilisation in continental Europe, and a chase for possible yield compressions in central and eastern Europe. Regardless of the investment location, yield compression is no longer the main rationale for investment.
Overall, European economies are projected to slow; however, some forecas tfigures for gross domestic product remain strong. Nonetheless, financial turmoil, higher energy prices, a reduction in euro-based exports, and a cooling housing market will have an impact.
Due to the subprime crisis in the United States, unleveraged equity investors will lead the capital march in Europe after losing out for years to highly leveraged players. According to survey results, this capital will come mainly from institutions, private property vehicles, and open-ended funds, mostly from the Middle East and the Asia Pacific region. European debt is still available; however, it will not be easy to find or come at a cheap price in 2008. Many investors believe a decline in availability of capital will lead to stronger real estate fundamentals and less of the quick buy-and-sell approach.
The publicly traded real estate market has continued to decline over the past year, with returns down over 30 percent. Larger losses in the REIT market seem to come from the West, with a slightly better outcome from continental Europe.Predator investors have kept an eye on this decline and believe that discounts to net asset value might just be becoming too wide to ignore this year.
Institutional investors are becoming more aware of the benefits of adding global real estate equity funds to their portfolios. Currently, there are more than 250 available global funds managing over US $81 billion in capital. Positive returns with projected low correlations to other equity and bond funds are appealing to all capital investors.
Capitalisation rates for all property sectors are expected to increase moving forward. Therefore, real estate executives are moving their interest from acquisition to development with a focus on core assets in 2008. Some expected hurdles include construction cost increases and the challenge of financing projects in a real estate downturn.
European investors will continue to find opportunities to invest in direc treal estate throughout Europe, focusing on the three main markets: the United Kingdom, Germany, and France. However, globalisation of real estate will be on all investors’ minds as they head to eastern Europe and Asia to attempt to take advantage of yield compression and higher returns.
Based on investment prospect ratings, the top five markets in 2008 are Moscow, Istanbul, Hamburg, Munich, and Paris. Development prospect ratings place Moscow and Istanbul again in the first and second slot, followed by Munich, Hamburg, and Lyon. Unfortunately, Moscow takes in a third category as well by being ranked the riskiest city.
The European property sectors will continue to offer good investment opportunities in 2008. Five out of the seven major property types are rated as“modestly good”; however, most rating values for each prospect are lower than last year. The top three closely ranked sectors include retail, mixed use, and hotels.
Because standard property sectors are no longer subject to yield compression, real estate players are starting to look at alternative investments, including nursing homes, self-storage, caravan parking, and petrol stations. Many professionals believe the shift from conventional real estate investing is being driven by opportunities for higher returns and discovery of the next big sector.
European infrastructure continues to be an area of focus in 2008, with its market size falling between €4 trillion and € 5 trillion. Many pension funds, endowments, and other investors think of infrastructure as a long-term, fixed-income investment and an important aspect of their real estate business.
Emerging Trends in Real Estate Europe 2008 represents a consensus outlook for the future and reflects the views of more than 485 individuals who completed surveys and/or were interviewed as a part of the research process for this report. Interviewees and survey participants represent a wide range of industry experts—investors, developers, property companies, lenders, brokers, and consultants. ULI and PricewaterhouseCoopers researchers personally interviewed over 210 individuals, and survey responses were received from 277 individuals whose company affiliations are broken down as follows:
- Private Property Company or Developer 26%
- Real Estate Service Firm 24%
- Other 23%
- Institutional/Equity Investor or
- Investment Manager 13%
- Bank, Lender, or Securitised Lender 6%
- Publicly Listed Property Company or
- REIT (including SIIC, SICAFI) 5%
- Homebuilder or Residential Land Developer 3%
Urban Land Institute and PriceWaterHouseCoopers
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