European property stocks may have turned a corner and be poised for recovery after price falls averaging about 40% over the past year, senior industry figures told a recent European Public Real Estate Association (EPRA ) seminar held in London.
In a sign of the uncertainty and search for direction gripping the listed real estate sector amid the credit crunch and extreme volatility in financial markets, well over 200 people registered for the seminar, compared with closer to 70 at the same event last year. "I believe the worst is now over. Property stocks have fallen roughly as far as they did in the early 1990s downturn and show price discounts of 30% to Net Asset Value," Harm Meijer, Head of European Real Estate Equities Research at JPMorgan, told the seminar organized by legal firm Nabarro at the Lloyds of London building.
"The equities market is implying an outward shift in yields (rent as a proportion of capital value) of 170 basis points, or negative capital growth of -28.5% over the next year. We were predicting gains in UK property stocks of 18% this year. After the advances of the past couple of weeks, that target is now 15%," Meijer added.
Ian Coull, Chief Executive of UK industrial property company SEGRO, said the sharp fall in the volume of property deals posed a problem for valuers. "Valuers are having to be quite 'brave' and make valuations based on their sense of what's going on in the market, as there isn't enough real evidence out there. It will be interesting to see what happens in the next six to eight weeks as those valuations come out," he commented.
Martin Barber, Chief Executive of the UK's Capital & Regional said he expected the British real estate investment market to stabilise between the end of the first and third quarters of 2008. This could trigger a wave of capital flows into the UK, followed by the languishing U.S. real estate market. "I think we'll see a lot of deals done in the second quarter and that the turnaround from this downturn is going to be faster than from ones we've seen in the past," he said.
Much of the increased investment in property stocks over recent years has been attributed to the spread of the tax-efficient Real Estate Investment Trust (REIT) model from the U.S. across the rest of the world.
Newly appointed EPRA Chief Executive Philip Charls told the seminar that the association would focus on helping to drive the expansion of REITs across Europe in 2008 both at the national and EU-levels