The region as a whole was confronted with a flight of foreign capital and investment is likely to remain low for some time. However, three markets in the region have proven to be very resilient in the current economic environment: Poland, Czech Republic and Turkey, the latter benefiting from its strong population growth and strategic geographic positioning.
“Elsewhere in the region though, the real-estate sector was hard hit with property values and occupancy rates falling fast. That is also the case of Romania, which saw a decline in real-estate prices and transactions and the local market is only now beginning to experience a thaw”, said Brian Arnold (photo), Tax and Legal Services Partner with PricewaterhouseCoopers Romania.
With some credit easing and property values stabilizing, Europe’s real estate industry will see some improvement in 2010, but still faces a ‘long, slow haul’ to recovery.
The seventh annual report Emerging Trends in Real Estate Europe 2010 is based on surveys and interviews with well over 600 of the industry’s leading authorities, including investors, developers, financiers, and property managers. "Overwhelmingly, respondents cite the need to move forward cautiously, as Europe’s economy remains fragile due to high unemployment and low consumer spending", the report says.
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.
“Europe’s economic recovery is underway, but it will be sluggish and uneven,” said Alexander Otto, ULI Europe Chairman and chief executive officer of ECE Projektmanagement in Hamburg. He noted that in general, Germany is viewed more favorably 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.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.
The City ranked fourth in 2010 for investment in existing properties and first for new acquisition opportunities. Additional markets rounding out the “top ten” named by Emerging Trends for existing property performance prospects are Vienna, Milan, Istanbul, Berlin, Rome and Frankfurt.
Centre city offices, high-end street retail and shopping centres are the top commercial investment choices for 2010. Residential investments are also highly rated.
Among the top tips from the report’s respondents:
- Keep it simple: Go for “plain vanilla real estate investments that everybody understands.”
- Best buys: Stick to investments in large, liquid markets.
- Development: For those with the stomach for risk, buy land and start building up a pipeline of projects. Residential and mixed-use are the best sectors.
- Go for debt: Buy a bank or set up a lending platform. Now is a great time to lend on real estate, if you have the right skill-set and no legacy issues. Values are low and “the gap between cost of funds and loan margins is as good as it gets”. Or, buy distressed debt at a discount.
- Green is good: Real estate is on the front line in the battle against climate change. “There is now a clear realization that environmental and social responsibility is connected to economics. It has become an action issue.”
PricewaterhouseCoopers provides industry-focused assurance, tax and advisory services , and employs 163,000 in 151 countries.
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