German cities dominate the investment prospects for Europe’s commercial real estate sector as investors continue to favour safe haven locations according to Emerging trends in real estate® Europe 2013, a real estate forecast published jointly by the Urban Land Institute (ULI) and PwC. The ranking of 27 cities across Europe, based on respondents’ expectations for market performance in 2013, sees Munich top the league table followed closely by Berlin in second place and Hamburg in fifth position, with investors taking comfort from each of the cities’ strong local micro-economic climate and resilient property market conditions.
London, which is seen by many as Europe’s ultimate safe haven market, is the largest riser in this year’s report taking third position. Investors continue to be attracted by the size and liquidity of its real estate market, the stability of sterling as a currency and its ability to stand alone from the rest of the UK and Europe’s economic issues.
Overall, the cities that are ranked highest are the larger Western European centres with international appeal and better economic prospects. In contrast, the worst performing cities were those in countries at the heart of the eurozone crisis or struggling to cope with the consequences of the 2008 financial meltdown such as Athens, Lisbon, Dublin, Madrid and Barcelona.
Ireland - improved prospects for Dublin real estate
There are sentiments of improvement in Dublin for both investment and development prospects. For example, for investment prospects, Dublin has moved up in the rankings to 20th place in 2013 from 26th place (out of the 27 cities) in 2012. For new investments, Dublin has moved up to 15th place from 22nd place last year and for development prospects, Dublin has moved up 5 places to 19th. The report notes that an improving economy is encouraging and the clarification of upward-only rent reviews has also helped to ‘calm the market’.
The report notes that investment market remains extremely thin in Dublin, though this could improve substantially over the coming months. Interviewees predict increased opportunities to invest in distress properties, as Irish banks begin to release properties to market and the appetite appears to be there especially from the US opportunity funds.
Speaking at the Irish launch of the report, Enda Faughnan, PwC Ireland Real Estate Partner, said: “The survey results indicate improvement in Dublin real estate prospects across the board as prices are seen to be bottoming out. We are certainly seeing increased interest from international investors and, together with renewed activity from local high net worth individuals, this will result in a stronger transaction flow this year.”
According to Mark FitzGerald, Executive Chairman of Sherry FitzGerald, Dublin’s strength as a capital city is helping it to begin to recover. “Research data shows that there were approximately €3 billion of residential and commercial transactions in Dublin in 2012.”
Mr. FitzGerald went on to say that regional Ireland accounted for approximately another €3 billion of residential and commercial transactions, which may come as a surprise to many people. “Dublin is seeing 51% of the transactions, and the rest of the country 49%. It’s virtually evenly split” – Mr. FitzGerald said.
Guy Hollis, Managing Director, CB Richard Ellis added: “It is not surprising that Dublin has moved up the ranks in this year’s study, buoyed by a notable increase in the volume of investment transaction activity over the last 12 months as banks, receivers and NAMA continue to release assets to the market for sale. We believe that prime property in the Irish market is now moving into a recovery phase. However, secondary assets will take considerably longer to unwind”.
Approximately 80 percent of the respondents surveyed for the report believe that the eurozone crisis has presented their own business with new opportunities. However this relative optimism is tempered by a general consensus that there will be little improvement in the overall European economy or the region’s real estate market during 2013. Survey participants were more pessimistic about the outlook for cities’ property markets than they have been since 2004 and 45 percent of the respondents expect capital values to remain stagnant until 2017.
The report notes that the tempered optimism is a result of real estate companies restructuring their business over the past five years and now beginning to deploy new strategies to profit in challenging economic and property market conditions. This adaptation to the ‘new norm’ sees businesses mitigating risks wherever possible and focusing capital on specific assets and opportunities rather than adopting pan-regional or sector specific investment positions.
“Almost five years since the start of the financial crisis, real estate investors remain cautious about capital deployment and the availability of debt,” comments Joe Montgomery, chief executive of ULI Europe. As a result, investors are focusing on the harder to find opportunities in blue-chip cities such as Munich, Berlin, London and Paris rather than turning to secondary locations in search of higher returns.”
Enda Faughnan added: “Our report shows that European real estate investors are approaching opportunities with a new mindset, conscious that the environment in which they are operating is ‘the new normal’ and is set to stay the same for some time yet. Investors face ongoing challenges but are cautiously optimistic about their prospects for the first time in many years.”
Top investment markets for 2013:
The top five European real estate investment markets in 2013 are predicted to be:
One of the areas causing the industry the most concern is the availability of debt and the estimated £350bn -£600bn lending gap caused by the banks continuing to undertake a structural reduction in commercial real estate lending. The report shows that up to 43 percent of businesses found it harder to secure debt during 2012, with 56 percent of the industry expecting there to be less debt available for refinancing and new investment in 2013.
This pessimism is particularly felt in Portugal, Greece and the Benelux countries although a reduction in debt availability is also expected in Spain, Italy and Turkey. In contrast, over 60 percent of businesses in the UK expect an unchanged or improved borrowing environment, even though individual banks remain reluctant to act as sole lenders on deals of more than £50 million.
The report outlines the following “best bets” for 2013:
Notes for editors:
Top 10 European cities for existing property investments:
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Emerging trends in real estate® Europe
Emerging trends in real estate® Europe is a joint report published annually since 2003 by the Urban Land Institute (ULI) and PwC. The report provides an outlook on European real estate investment and development trends, real estate finance and capital markets, as well as trends by property sector and geographical area. It is based on the opinions of more than 500 internationally renowned real estate professionals, including investors, developers, lenders, agents and consultants.
Analysis from Dirk Brouen, professor of real estate economics at Tilburg University, which compares actual IPD property market performance data with past emerging trends predictions, demonstrates that the report has correctly predicted what the overall trend for European real estate would be in eight out of the past 10 years.
About the Urban Land Institute
The Urban Land Institute is a global nonprofit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide. Established in 1936, the Institute has nearly 30,000 members representing all aspects of land use and development disciplines.
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