European real estate investment markets are increasingly being impacted by the global financial and economic crisis, but institutional property investors do not anticipate any fundamental, long-term effects on Germany as a real estate investment location. That is the key finding of a survey by Union Investment of some 100 real estate companies in Germany, France, the UK and the Benelux countries, which was completed in December 2008.
Although the Investment Climate Index compiled by Union Investment fell significantly in all markets following the dramatic worsening of the financial crisis in the fourth quarter, with drops of between 9.3 and 10.2 points being recorded, Germany remains remarkably stable with respect to the long-term indicators 'general environment' and 'market structure' compared with the first survey back in 2006.
The survey findings suggest that the key factors which make Germany an attractive investment location are regarded as intact, with investment professionals believing that the German real estate market will escape the kind of sustained deterioration expected by investors with regard to the UK property market.
"The fall in the index reflects the sharp downturn in the major European economies. Having said that, German and French investors clearly have far greater confidence in the mechanisms underpinning their markets than their British counterparts, who have been harder hit by the turmoil," says Dr. Reinhard Kutscher, chairman of the Management Board of Union Investment Real Estate AG.
Despite a marked drop compared to the second quarter of 2008, the index values of 58.8 points recorded in Germany and 57.1 in France remain well above the UK figure of 50.4 points. While British respondents are steeling themselves for the long-term impact of the financial crisis, German real estate experts see the effects as being temporary in nature. The dramatic worsening of sentiment is offset among German real estate investors by continued confidence in the potential of the domestic market: 58% of those questioned expect foreign investors to show the same level of interest in the German property market in 2009, or greater interest. This chimes with the fact that the proportion of investors across Europe taking part in the survey who see Germany playing a major role in their investment planning in 2009 is up 10 percentage points over the spring survey, at 62%. Conversely, only 29% plan to focus their investment on the UK, with the figure for France being 32%.
The subdued economic outlook and huge uncertainty surrounding credit terms are the main factors affecting sentiment in all the European markets covered by the survey. Almost 50% of the real estate investors involved expect willingness to invest to continue falling over the next 12 months. Around one in three companies (35%) plans to cut back its own property investment activity compared to 2008.
Source: Union Investment