LONDON-Recent European economic data show a strong picture that growth is coming from Chinese imports, inventory building, government spending, and purchases in anticipation of VAT hikes. Since some of this support will diminish in the next 15-18 months, real estate prices could be affected, says London-based property investment manager AEW Europe.
In its latest real estate report, AEW thus predicts a sluggish 2011 for the economy and commercial property. AEW believes risk aversion will spread further, and the gap between prices of prime and secondary assets will widen. Under the economic circumstances and increasing regulation, like Solvency II and Basel III, investors are already reluctant to take risks, so that long leases, strong tenants and good locations are in high demand. Core real estate is enjoying strong capital gains so that property is still good value.
Basel III, focusing on bank liquidity risk, counterparty risk and other issues, will have an indirect effect on real estate lending. Assets considered liquid in the past will now fill up the list of illiquid assets. Investors will need to seek financing for this type of property increasingly from the capital market directly, rather than from banks.
AEW remains positive on offices, especially in the Nordics, Russia, UK and France. Weak net supply will create space pressures in 24 months, once demand recovers. Despite high retail confidence, demand is expected to fall. The supply side is improving, with development focusing on either small projects or extensions. Polarization is a key theme, with prime schemes highly on demand.
Germany will be an interesting market with its low shopping centre density, and the third-party logistics market is widely seen as a potential winner. Cost conscious businesses should increasingly opt to outsource logistics platform and focus on core business. Nordic residential markets are rather buoyant, with the exception of Denmark. This is partly due to recent legislation changes in which rents on new buildings in Sweden were deregulated. This triggered a strong surge in rents with 27% growth in two years. Prime residential Stockholm may be the new “King Core”, AEW said.
Allan Saunderson is a managing editor of Property Investor Europe and a contributor to GlobeSt.com.
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
