Some of Jones Lang LaSalle's EMEA business leaders outlined their expectations on Wednesday March 17 at MIPIM in Cannes, offering their views for the real estate markets in EMEA in 2010 and sought to define the 'new normal' for the real estate sector. The message from the presenters at the Jones Lang LaSalle MIPIM media briefing was that though EMEA's economies have turned a corner and are moving out of recession, they are not yet out of the woods and recovery across the region will be not be uniform or evenly paced. Crucially, there are a number of key drivers that will impact the pace and shape of recovery and which are defining the 'new normal'.
Christian Ulbrich, Jones Lang LaSalle EMEA CEO, said: "It is clear that we are in the process of redefining 'normal' for the real estate markets, not only in EMEA but globally, and we predict a number of key themes in EMEA this year. The availability of debt will be a major determinant of pricing this year, especially for tier two assets. Equity players will continue to dominate, but globalisation will result in a change in players and their demands. We see short term opportunities in government and the banking sector, though we expect these to evolve slowly. The traditional occupiers will be more selective and seek to manage their footprint more opportunistically, although the window of opportunity meaning lower rents and record incentive packages is limited. We expect to see some considerable supply shortages in pockets around Europe as competing developments will be very thin on the ground this year: there are opportunities for those developers who have the funding and foresight to start developing in the right locations now."
Paul Guest, Head of EMEA Research at Jones Lang LaSalle, picked out exceptions to the new normal: "For investors property remains an attractive asset class in a world of low interest rates and high inflation and rising sovereign risk and we believe there are enough potential buyers to push some EMEA markets out of line with fundamentals. The money is chasing very limited product in light of alternative asset returns. In the same way some occupiers, in particular retailers for example, are willing to pay over the odds to secure the best locations. At the same time, Europe is recovering unevenly, meaning that there will still be organic growth, particularly in 'emerging' markets."
After people costs, property is the second highest outlay for occupiers, so the slow recovery in the occupier markets is emphasising the need for them to deal proactively with this."
Highlights from the media briefing
Banks: Risk pricing is set to remain high in 2010 which will restrict lending, affecting lots sizes, volumes and product availability. As banks work out the property they now hold they will create asset and property management opportunities. Charlotte Strömberg, CEO, Jones Lang LaSalle Nordics, commented: "The mantra of 'extend and pretend' which dominated in 2009 will continue this year but rising interest rates will force the banks to be selective about which loans they chose to extend. The Nordic experience from the early 1990s is proof that a gradual workout is healthier for the market in the long-term than the alternative."
Government: The common theme for governments across Europe this year, despite upcoming elections in some countries, is the need to save money and cut debt. This will have a double impact on economic growth across the region, although the spending cuts will generate real estate disposal and advisory activity.
Changing Players: Whilst the market will remain equity driven, new players are emerging and there will be greater polarisation and differentiation between the best and worst performers. Charlotte Strömberg said: "We think that investors who proved themselves trustworthy and stuck to successful strategies in the downturn will be tomorrow's winners and will attract an increasing share of capital flows."
Globalisation: Savings are accumulating across the world, in p