Investors have shown a clear strategic shift in their investment preferences in Europe in favor of Germany and Central and Eastern Europe (CEE) as the most attractive markets in which to purchase real estate in 2011. Approximately one-third of investors intend to target acquisitions in Germany in 2011 compared to 18% in 2010, and around a quarter of investors have CEE as their top investment target this year, up from 16% last year, according to the results of a survey of almost 350 European real estate investors by CB Richard Ellis (CBRE).
CBRE announced the results of the survey at the company's European Investment Briefing held yesterday (March 9, 2011) at MIPIM, the international real estate event held annually in Cannes, France.
Germany leapfrogged the UK and France to become the number one target destination for investment opportunities in Europe in 2011, continuing a trend which began in 2010 when Germany was one of the fastest growing investment markets in Europe. This reflects the influence of the strong economic performance in Germany as the driver of real estate investment opportunities.
The UK led the European market recovery in both transaction volumes and property values from the low point in 2009, but the survey revealed that investor attention is starting to turn elsewhere, possibly as a result of the degree of capital value growth that has already been realized in the UK's prime markets.
France, as the fourth most attractive market in Europe for 2011, also showed a substantial fall in its relative attractiveness compared to last year, with 10% of investors naming it as their key destination. Despite the country's economic difficulties, Spain's investment appeal has grown slightly in the past year, with 9% of investors favoring the market in 2011, primarily underpinned by core investors seeing an opportunity to buy into this market at historically attractive yields.
Core assets remain the main focus for investors in 2011 and there are still divergent views among investors on the right time for investing in secondary property. The survey shows that investor sentiment towards secondary property is increasingly negative, with over 70% of investors expecting the historically wide gap in yields between prime and secondary property to persist or widen further in the course of 2010, while 61% of investors do not intend to invest in secondary property until 2012 or later.
Peter Damesick, EMEA Chief Economist, CBRE, commented: "While the majority of demand is focusing on core assets in 2011, we expect an increasing number of investors will start turning to more secondary assets in the second half of the year and into 2012 as a result of the intense competition for core assets. However, while some investors are starting to look for opportunities higher up the risk curve, the shortage of debt finance for investment in secondary property remains a significant constraint on activity in this part of the market. There may need to be some further re-pricing before value-add and opportunistic investors become active in a big way."
Looking at the most attractive real estate sectors, as expected office and retail dominated. More than a third (35%) of investors identified offices as their primary target sector for 2011, as their search for prime stock in core European countries continued. However, retail took over from offices in this year's survey as the most attractive sector overall, with 43% of investors targeting all retail categories combined, up from 34% in 2010. Shopping centers are the most preferred retail sub-sector, attracting 23% of investors. This mirrors the shift witnessed in the European direct real estate investment market, leading to a rising trend in the retail share of activity.
John Welham, Head of European Retail Investment, CBRE, commented: "Prime retail property has recovered in value in much the same way as office property, so that the more economically stable markets have seen the greatest recovery. Prime shopping centers in Germany, for example, are now trading at yield