Real estate fears spread across Europe

Posted On Saturday, 22 March 2008 02:00 Published by
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Continental European property markets will be the next to catch a chill following problems in the US and UK, according to executives at last week’s Mipim real estate conference in Cannes

Delegates said they had hoped the credit crunch that began in the US and then moved on to Britain would die out before it crossed the Channel. But they warn the rest of Europe is also about to be hit.

“This is a slow motion car crash; it is not the big bang,” said Rick Lewis, chief investment officer of real estate investment manager AEW Europe.

“The first stage is denial and the second stage is acceptance and we’re somewhere between the two. Three to six months ago people were denying they had a problem, insisting Europe was going to decouple. Now the story has changed,” he said.

Jones Lang LaSalle’s research head Nigel Roberts said: “This time a year ago the property party was in full swing after five years of fantastic performance. The market was awash with capital and we estimated that there was €5 ($8) chasing every €1 of real estate product. Today’s post credit crunch environment is testing investor confidence in the sector.”

Overall, real estate capital values could be expected to fall by around 10% this year, he said, adding to sharp falls in the last quarter of 2007. Iain Reid, chief executive of Protego, said: “There will have to be some further slippage of prices in continental Europe.”

Last week, Aberdeen Property Investors predicted a decline in European property returns this year, compared to 2007. The firm is predicting returns of 1.9% in European property this year as a result of declining capital values.

Total returns for 2007 are estimated to have been 3.7%, compared with a record 13.3% achieved the previous year.

In 2008, Aberdeen expects Norway and Finland to produce the best returns. Alessandro Bronda, head of investment strategy at Aberdeen Property Investors said: “We believe future performance is going to be increasingly dependent upon the underlying fundamentals of the market rather than yield compression.

“Property returns in future will be driven essentially by rental growth, with active asset management playing an increasingly important role in boosting performance at the investment level.”

A separate report by the Urban Land Institute and PricewaterhouseCoopers suggests Moscow and Istanbul may be better bets.

Publisher: Financial News

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