The view from the peak
At MIPIM 2005, Jones Lang LaSalle (JLLS) presented its viewpoint on the real-estate investment landscape.
According to its research, as the European economy picks up, office occupation will improve, leading to a more stable office market, with retail and warehousing also experiencing an upturn.
Speaking at MIPIM 2005, Tony Horrell, CEO of European capital markets at JLLS said: "Europe's commercial real-estate market has changed dramatically over the past few years. The investment market has evolved rapidly, resulting in greater transparency, higher liquidity, a more diverse set of market players and, above all, increased acceptance of real estate as a mainstream asset class.
"An unprecedented level of equity and debt is now targeting European real estate for investment, which we believe is comfortably in excess of annual direct investment turnover [which reached a record EUR 95.6 (zł.382.4) billion in 2004], and is evidence of a structural shift that has occurred in the marketplace.
"We expect 2005 to at least match 2004, possibly rising above the EUR 100 (zł.400) billion mark, with investors looking further afield for opportunities."
Echoing an earlier PricewaterhouseCooper report, which claimed that in the case of Eastern Europe there is currently more capital available for investment than can be placed in the market, Nigel Roberts, head of European research at JLLS, said: "The majority of real estate remains in the hands of owner-occupiers across Europe, reducing the potential investible universe from EUR 4,700 (zł.18,800) billion to around EUR 1,500 (zł.6,000) billion.
"The disparity in investor demand and supply of product has generated intense competition, placing upward pressure on prices at a time of weak economic fundamentals and leasing markets, particularly offices."
The firm highlighted Germany, Central Europe and Scandinavia as key target markets, with investor interest growing in Russia, Slovakia and Romania. Demand for offices and distribution warehouses from investors is expected to increase, while the retail sector's share is expected to slip somewhat.
Investors are expected to move further up the risk curve in search of lucrative yields, mostly by: tackling asset-management opportunities in prime sub-markets; targeting quality buildings in non-prime sub-markets; targeting 'second-tier' cities; and increasingly taking on more development opportunities.
Europe is set to become a hotbed of activity as prime movers, such as US REITs, Australian LPTs, wealthy individual investors, and syndicates, go global in the search for lucrative real estate. Listed tax-transparent vehicles are also expected to crack open the European commercial sector.
The company also believes that the European owner-occupier rate, which currently stands at 60 to 70 percent, will gradually slip towards levels more typically found in the US, of 20 to 30 percent.
JLLS also identified a number of key risks and threats to European real estate.
These include: rising interest rates could erode positive yield gaps; a significant outflow of capital to other assets like equities; shock risks associated with global geopolitical 'events'; and the perception that a pricing bubble has built to unsustainable proportions.
However, the firm says that these are relatively low probabilities and it expects a broader investor base to seek opportunities widely across the region, via increasingly sophisticated vehicles and financial instruments.
According to its research, as the European economy picks up, office occupation will improve, leading to a more stable office market, with retail and warehousing also experiencing an upturn.
Speaking at MIPIM 2005, Tony Horrell, CEO of European capital markets at JLLS said: "Europe's commercial real-estate market has changed dramatically over the past few years. The investment market has evolved rapidly, resulting in greater transparency, higher liquidity, a more diverse set of market players and, above all, increased acceptance of real estate as a mainstream asset class.
"An unprecedented level of equity and debt is now targeting European real estate for investment, which we believe is comfortably in excess of annual direct investment turnover [which reached a record EUR 95.6 (zł.382.4) billion in 2004], and is evidence of a structural shift that has occurred in the marketplace.
"We expect 2005 to at least match 2004, possibly rising above the EUR 100 (zł.400) billion mark, with investors looking further afield for opportunities."
Echoing an earlier PricewaterhouseCooper report, which claimed that in the case of Eastern Europe there is currently more capital available for investment than can be placed in the market, Nigel Roberts, head of European research at JLLS, said: "The majority of real estate remains in the hands of owner-occupiers across Europe, reducing the potential investible universe from EUR 4,700 (zł.18,800) billion to around EUR 1,500 (zł.6,000) billion.
"The disparity in investor demand and supply of product has generated intense competition, placing upward pressure on prices at a time of weak economic fundamentals and leasing markets, particularly offices."
The firm highlighted Germany, Central Europe and Scandinavia as key target markets, with investor interest growing in Russia, Slovakia and Romania. Demand for offices and distribution warehouses from investors is expected to increase, while the retail sector's share is expected to slip somewhat.
Investors are expected to move further up the risk curve in search of lucrative yields, mostly by: tackling asset-management opportunities in prime sub-markets; targeting quality buildings in non-prime sub-markets; targeting 'second-tier' cities; and increasingly taking on more development opportunities.
Europe is set to become a hotbed of activity as prime movers, such as US REITs, Australian LPTs, wealthy individual investors, and syndicates, go global in the search for lucrative real estate. Listed tax-transparent vehicles are also expected to crack open the European commercial sector.
The company also believes that the European owner-occupier rate, which currently stands at 60 to 70 percent, will gradually slip towards levels more typically found in the US, of 20 to 30 percent.
JLLS also identified a number of key risks and threats to European real estate.
These include: rising interest rates could erode positive yield gaps; a significant outflow of capital to other assets like equities; shock risks associated with global geopolitical 'events'; and the perception that a pricing bubble has built to unsustainable proportions.
However, the firm says that these are relatively low probabilities and it expects a broader investor base to seek opportunities widely across the region, via increasingly sophisticated vehicles and financial instruments.
