CB Richard Ellis Group, Inc. announced the results of a survey of more than 270 European real estate investors, revealing their intentions for the timing and focus of their investment activity over the coming years. The findings were launched at the company's European Investment Briefing held at MIPIM, the international real estate event held annually in Cannes, France.
At a global level, 60% of investors identified Europe as their primary target for real estate investment in 2010. "This European preference is probably not surprising given that the vast majority of respondents are based in, and predominantly invest within, the region," commented Nick Axford, Head of EMEA Research and Consulting at CBRE. "However, it is noteworthy that 40% see the best opportunities laying elsewhere, with Asia a clear target for many."
The UK has undoubtedly led the recovery of both transaction volumes and prime property prices in Europe over the last six months, and it continues to attract significant investor interest. "The transparency and liquidity of the market, coupled with the rapid adjustment in prices and the weakness of sterling make an attractive combination in a climate in which investors are still risk-averse and focussed on prime product," commented Jonathan Hull, Executive Director of EMEA Capital Markets, CBRE. "Any prime properties coming onto the UK market are attracting extremely strong investor interest, especially from overseas but tenant covenant and lease length are key concerns for investors," Hull added. Liquidity risk is also a primary concern, and it is therefore not surprising given the size of the markets and relatively positive recovery prospects that France or Germany appear most attractive to over a third of respondents. "We are now seeing a greater flow of capital to major cities beyond London, which is putting pressure on pricing particularly at the prime end of the market. But what is surprising is the strength of focus on the CEE markets, where transaction volumes have so far been extremely low over the past 18 months, perhaps suggesting that activity levels are set to stage something of a recovery during 2010," suggested Hull. As yet, investors see fewer opportunities in the distressed Spanish market, perhaps believing that the window for entering this market will remain open for longer here than elsewhere.
The office sector has historically been the most liquid real estate sector, accounting for around half of all transactions on average. Offices clearly continue to attract significant interest, being identified as the preferred target for 39% of investors surveyed by CBRE. However, the retail sectors combined are of comparable appeal, viewed as most attractive by 34% of respondents, with shopping centers the most favored sub-sector in retail. "Before the downturn, the shopping center market in Western Europe, and increasingly in Central Europe, was becoming very similar wherever you looked: prime yields in a narrow range, finance terms similar, comparable rental growth forecasts, similar tenants, and even the same investors and developers. The prospects and pricing of retail real estate in different markets is now extremely diverse, and therefore demands a clear understanding of individual market fundamentals. There is also a very clear differentiation emerging between the prime locations and the rest of the market," commented John Welham, Executive Director of EMEA Retail Investment, CBRE.
Whilst the yield-driven recovery in values across many markets is welcomed by investors, their principal concerns have now turned towards the occupational side of the value equation. "More than half of the survey respondents selected the risk of a 'double dip' recession or a weaker than expected recovery in occupier demand as the biggest potential threats to the property market. However, the relatively low level of development activity in many markets means that it is the prospects for demand, rather than supply-side risk, which is keeping investors awake at night," said Axford. The parlous sta