Major markets across the world are already seeing a burst of sublet space coming to the market as companies look to trim their liabilities, and this will potentially slow rental growth and hit investment returns. However, with both the London and New York stock exchanges finishing down for the second consecutive year property still has an important role to play in a mixed-asset portfolio, say the asset managers.
As times get harder in the property market LIM expects investors to focus more on their domestic markets, with a consequent fall in cross-border investment. Investors are expected to take a more defensive approach to portfolio strategy, while still looking to position themselves for the eventual upturn.
However, the one bright spot in the investment picture is the very low level of interest rates. This presents a once-in-30 years opportunity to borrow at low rates relative to property yields.
Europe as a whole is forecast to perform more strongly that the American or Asian markets. The UK is likely to be the strongest-performing market with economic growth of 2% forecast for 2002, although France and Germany are not expected to fare as well. However, within Europe, LIM warns that the UK is in danger of becoming isolated from the investment mainstream because of its refusal to join Economic and Monetary Union. Exchange rates mean that euro-zone investors will see UK property as relatively expensive.
In the euro-zone, LIM expects cross-border activity to increase as investors look to exploit the much-expanded 'home market' and it highlights the retail sector in the Mediterranean markets of Portugal, Spain, Italy and Greece as one of the best opportunities.
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