King Sturge: Belgian Real Estate Investment Market 2007 (BE)

After very strong momentum in the investment market over 2006, King Sturge expects 2007 to be a new record where investment volume may exceed €5 bln. by year end.

When comparing volume invested across all asset classes over the first 3 quarters of 2007 with the same period in 2006, we can highlight an increase of approximately 10% to reach €2.6 bln. When looking more closely at the different asset classes, we can nevertheless distinguish a very strong increase in the industrial1 market (+260%) and a slight decrease in the office market (-17%). This is mainly the consequence of two important logistical products made available for the sale: the sale of a main logistical hub of Carrefour to CommerzGrundbesitz and the acquisition of the ABX portfolio by Fortis. In the office market several large transactions have already taken place during the beginning of October or are planned to be closed by year end. Hence, we believe that 2007 may break all records with a volume invested in excess of €5 bln.

As in 2006, Anglo-Saxon investors have been the most active with a share of 66% of the total volume invested in the office market in Brussels. The appetite of Anglo-Saxons is for peripheral/decentralised locations as well as for the CBD of Brussels. Even though some of these investors are heavily geared, other Anglo-Saxon investors use reasonable loan to value ratios or fully invest through Equity.

With regards to yields, we have observed a continuing convergence across asset classes irrespective of location over the first part of 2007. We nevertheless believe, in view of the "credit crunch", that this convergence will be halted. Even though the interest in investment products remains strong and there is still a huge volume of equity to be invested in property, investors are becoming more cautious of the inherent risk of each opportunity. When looking more closely to the yields of the different asset classes, we have observed a stronger compression in offices and logistics. The latter's price increase is mainly due to the fact that no real prime institutional investment opportunities were made available before this year. Over the next couple of months, we do not expect further yield compression, except in light industrial and retail warehousing where slight price increases may still occur.

It remains interesting to see that major investors keep on looking for alternative investment opportunities. We have, for instance, seen Cofinimmo welcoming INBEV as major tenant when acquiring 90% of the shares of the company which owns more than 1000 pubs & bars in the BENELUX. We have also noted 2 major indirect investments in Real Estate:

  • JER took over the 30% shareholding of Suez in the Belgian developer Immobel;
  • The dutch developer Royal BAM group has enlarged its activities by absorbing Landsbeek, the Belgian developer.

On the European stock markets, major quoted real estate companies have seen their quotation revised downward since the beginning of the year. This effect can be mainly explained by:
  • The fact that quoted real estate companies have outperformed the stock market over last year and, hence, this relative decrease is more like an adjustment;
  • The fact that some opportunistic short term investors (hedge funds…) which had taken position in the capital of quoted real estate companies have decided to realise a strong capital gain by selling their shares over 2007.

We also believe that private individuals, who are generally risk averse and who had invested in indirect real estate may have decided to review their positions in view of the market rumours of a real estate bubble.

In Belgium, even though major Sicafi's have underperformed the Bel 20, the decrease was more controlled than in other countries. This is mainly explained by the fact that Belgian Sicafi's have faced lower increases over the last year than similar companies in other European countries. This situation reflects the relative low volatility of the Belgian direct real estate market.

In conclusion, the 'sub-prime

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