Too much money, too little product
Last week saw the launch of PricewaterhouseCoopers' Emerging Trends in Real Estate Europe 2005 report, and Mark Charlton, the author and senior editor of the report, was on hand to explain its findings.
Unsurprisingly, Central and Eastern Europe featured high on the agenda of those interviewed. It is an area many speculators are itching to dip into and the report reflects this. Although the report uses a risk-adjusted ranking, which means that many CE cities were pushed down the scale, the area featured heavily in investors' 'buy' recommendations, and demand is currently far outstripping supply in the region.
According to Mark Charlton: "There is more money being raised than can be placed in European real-estate markets.
"Prague is top by office and industrial, and just piped into second place for retail by Milan. The high average risk rating moved the cities down the adjusted ranking but it is clear that Prague sits very highly on investors' shopping lists. The risk comes from the most accelerated yield compression that we have ever seen. The money being raised for Central Europe is more than can be placed in the market. Economic growth is double that of other EU countries and we have very low vacancy rates in modern retail and industrial space.
"Warsaw is ranked third on the 'buy' list for office, and fourth for industrial and retail. Investor interest in Poland has rocketed since Poland joined the EU. There has been striking yield compression across all sectors. Warsaw still had higher prime office yields than Prague and Budapest at the end of last year, but this differential is disappearing fast. The only word of warning concerns the retail sector, where some felt it was on the edge, perhaps with a degree of oversupply."
European real estate in general is in good shape, according to the report. "Real estate is considered to be the least worst performing asset class," says Charlton. "This means that it is likely to perform better than competing assets but nobody is really expecting it to perform in an outstanding fashion.
"People are anticipating a good year in European property. The outlook is healthy for 2005. More than 87 percent of real-estate businesses consider themselves to have good, moderately good to excellent profitability in the coming year."
Private investors continue to be a force to be reckoned with, according to the research. "This market has mushroomed across Europe in the last three years as high net worth individuals seek secure real-estate assets," says Charlton. "The main sources of capital have been from Ireland, Israel and the Middle East, but no single source dominates."
Markets to watch, in terms of investment prospects, were dominated by the traditional centers of Paris and London, with Milan, Lyon and Brussels also featuring strongly. The worst investment markets were unsurprisingly dominated by the German cities of Frankfurt and Berlin, with the Dutch city of Amsterdam following closely on their heels.
More adventurous investors are looking much further East than Poland, however, with Istanbul and Moscow the leading development markets according to the survey. "These are high-risk markets but with huge potential for investors brave enough to venture in," reveals Charlton.
With regard to warehousing and logistics: "Central Europe in particular is benefiting from a shift to low-cost areas, a shift from west to east a shift from retail to industrial, supplying to the consumer directly from the warehouse. It is clear that e-business has yet to reach its full potential. Prague, Warsaw and Budapest all score favorably, benefiting from cross-border goods movements from countries proximate to the EU accession countries."
The report is based on more than 175 survey responses and 100 interviews with industry, owners, developers, consultants, academics and bankers.
Unsurprisingly, Central and Eastern Europe featured high on the agenda of those interviewed. It is an area many speculators are itching to dip into and the report reflects this. Although the report uses a risk-adjusted ranking, which means that many CE cities were pushed down the scale, the area featured heavily in investors' 'buy' recommendations, and demand is currently far outstripping supply in the region.
According to Mark Charlton: "There is more money being raised than can be placed in European real-estate markets.
"Prague is top by office and industrial, and just piped into second place for retail by Milan. The high average risk rating moved the cities down the adjusted ranking but it is clear that Prague sits very highly on investors' shopping lists. The risk comes from the most accelerated yield compression that we have ever seen. The money being raised for Central Europe is more than can be placed in the market. Economic growth is double that of other EU countries and we have very low vacancy rates in modern retail and industrial space.
"Warsaw is ranked third on the 'buy' list for office, and fourth for industrial and retail. Investor interest in Poland has rocketed since Poland joined the EU. There has been striking yield compression across all sectors. Warsaw still had higher prime office yields than Prague and Budapest at the end of last year, but this differential is disappearing fast. The only word of warning concerns the retail sector, where some felt it was on the edge, perhaps with a degree of oversupply."
European real estate in general is in good shape, according to the report. "Real estate is considered to be the least worst performing asset class," says Charlton. "This means that it is likely to perform better than competing assets but nobody is really expecting it to perform in an outstanding fashion.
"People are anticipating a good year in European property. The outlook is healthy for 2005. More than 87 percent of real-estate businesses consider themselves to have good, moderately good to excellent profitability in the coming year."
Private investors continue to be a force to be reckoned with, according to the research. "This market has mushroomed across Europe in the last three years as high net worth individuals seek secure real-estate assets," says Charlton. "The main sources of capital have been from Ireland, Israel and the Middle East, but no single source dominates."
Markets to watch, in terms of investment prospects, were dominated by the traditional centers of Paris and London, with Milan, Lyon and Brussels also featuring strongly. The worst investment markets were unsurprisingly dominated by the German cities of Frankfurt and Berlin, with the Dutch city of Amsterdam following closely on their heels.
More adventurous investors are looking much further East than Poland, however, with Istanbul and Moscow the leading development markets according to the survey. "These are high-risk markets but with huge potential for investors brave enough to venture in," reveals Charlton.
With regard to warehousing and logistics: "Central Europe in particular is benefiting from a shift to low-cost areas, a shift from west to east a shift from retail to industrial, supplying to the consumer directly from the warehouse. It is clear that e-business has yet to reach its full potential. Prague, Warsaw and Budapest all score favorably, benefiting from cross-border goods movements from countries proximate to the EU accession countries."
The report is based on more than 175 survey responses and 100 interviews with industry, owners, developers, consultants, academics and bankers.
