With some credit easing and property values stabilising, Europe's real estate industry will see some improvement in 2010, but still faces a 'long, slow haul' to recovery, according to Emerging Trends in Real Estate® Europe 2010, published yesterday by the Urban Land Institute (ULI) and PricewaterhouseCoopers.
Additionally, the report notes the looming problem of massive refinancing of real estate debt totaling hundreds of billions worth of euros. The industry is apprehensive as it is not clear how this will play out, in terms of whether financial institutions will sell real estate assets and loans or "extend and pretend." This challenge for the real estate sector is compounded by uncertainty over how, and when, European governments might wean their respective economies off the massive injections of state support. An abrupt withdrawal of the stimulus funds could derail the recovery, and even push the economy back into recession, the report notes.
John Forbes, real estate leader in Europe, Middle East and Africa, PricewaterhouseCoopers, remarked: "This year there is a sense of cautious optimism. Sentiment regarding investment prospects has stabilised and although sentiment regarding development continues to decline, it is a less dramatic fall than that witnessed last year. The key issue is the occupier side of the equation. Investors are nervous and they are concentrating on the deeper, more liquid markets."
"Europe's economic recovery is underway, but it will be sluggish and uneven," said ULI Europe Chairman Alexander Otto. "We are looking at a crawl back up the hill, and how much values recover will depend on where Europe ends up economically against global competition." Otto, chief executive officer of ECE Projektmanagement in Hamburg, Germany, noted that in general, Germany is viewed more favourably for investment and development activity than other countries, due primarily to its broad economy.
In terms of individual cities, Munich and Hamburg were ranked by the report as the top two prospects in 2010 for existing portfolios, a ranking they also held in 2009. "The diverse economic base and even balance between supply and demand has kept office markets in both cities healthy, making them an appealing choice for investment," Otto said.
Paris was ranked third by Emerging Trends in terms of prospects for existing portfolios, edging out London due in part to the general perception that it has a wider economic base and is less dependent than London on the financial services sector. Interviewees pointed to the low level of vacancies in Paris, raising its ratings for investment opportunities and, to a lesser extent, for development. Investor sentim