Urban Land Institute
Cheryl Pan, BlueCurrent Hong Kong
Direct Tel: +852 2967 8787
Caroline Underwood, Deputy Head of Media Relations
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HONG KONG (January 25, 2013) — Asian investors are increasing their exposure to European real estate according to a real estate forecast published jointly by the Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC). The report highlights that Asia-Pacific capital accounted for €2.2 billion of net cross-border acquisitions in Europe during 2012, an increase of 43 percent on the previous year and the highest level of Asian investment in the continent since 2007. While US investment in Europe is largely focusing on distressed assets, Asian capital is concentrated on safe core investments in leading European cities.
The focus of Asian capital on core investments is reflected by the wider sentiment of the European real estate sector. The report, which ranks 27 cities across Europe based on respondents’ expectations for market performance in 2013, sees German cities and other safe havens dominate the investment prospects for Europe’s commercial real estate sector. Munich tops 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. Approximately €12 billion of the €28.4 billion of investment turnover in Europe during the third quarter of 2012 was focused on the UK, with London accounting for 73 percent of this activity.
The report also highlights the key role of Asian consumers in shaping the European retail and leisure sectors. The Asian tourist market in Europe is a growing business with 8.6 million visitors expected each year by 2020 according to the London School of Oriental and African Studies. It is estimated that Chinese consumers alone spent €35 billion in Europe during 2010 with luxury shops in Paris and factory outlets in Frankfurt all benefitting from this growing trend. In addition, Asian investors have had a big appetite for purchasing off-plan apartments in recent years, especially in major cities such as London, and this trend is set to continue.
“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, both European and Asian 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.”
Simon Hardwick, real estate partner at PwC Legal, said: “Our report shows that 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:
- Munich – The city’s strong and liquid market is appealing to investors looking for dependable locations that can withstand economic turbulence. Munich has a mixture of global and mid-sized business occupiers and has expanding biotechnology, environmental sciences and media industries. Low vacancy rates and constrained supply mean that investors are confident of rental growth in 2013, while a rapid increase in tourist numbers, especially from BRIC countries, provides a positive outlook for Munich’s retail market.
- Berlin – Dubbed by many as Europe’s “Silicon Allee”, the city has a growing reputation as a technology hub with over 15,000 tech companies generating turnover of €19 billion per year. The influx of skilled technology workers has had a boost on the city’s residential market where the inner-city luxury apartment market is growing, especially in districts such as Mitte which has seen significant rental increases. Berlin’s reputation as a cultural centre ensures it receives high visitor numbers benefitting both the apartment and hotel sectors.
- London – The UK capital is one of the biggest risers in the 2013 survey, driven by its status as one of the world’s ultimate safe havens. There is some speculation that the recovery of values is complete but many see micro-market opportunities especially in the residential sector where super-prime homes in the very best postcodes and the under-explored private rented sector are favoured. The City and Canary Wharf office markets are still attracting trophy hunters but the development of new offices for financial services businesses is out of favour as the sector sheds jobs. Opportunities exist to develop space for the city’s growing technology and creative industries.
- Istanbul – While the other cities in the top five appeal to investors because of their inherent safety, Istanbul remains the most popular location for future development opportunity. The city’s exciting real estate potential is driven by economic growth which rivals China and demographics where the average age in Turkey is only 29. Recent changes have eased restrictions on foreign ownership of real estate, which is estimated by Turkey’s Association of Real Estate Investment Companies that these changes will boost investment in real estate by $5 billion a year.
- Hamburg – Investor interest in Germany’s second largest city is driven by its safe-haven status. Hamburg benefits from a diverse mix of global occupiers and domestic small and medium sized businesses. Investors are favouring offices, where prime yields of 4.75% are their lowest since 2002, as they are willing to pay the high price for the stability the market offers. However, with constrained office supply, appealing assets are becoming increasingly hard to source and some investors are switching to the city’s industrial sector.
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 normal’ sees businesses mitigating risks wherever possible and focusing capital on specific assets and opportunities rather than adopting pan-regional or sector specific investment positions.
NOTES TO EDITORS
Top 10 European Cities for Existing Property Investments
|2013 Ranking||2012 Ranking||Change|
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 Pricewaterhouse Cooper (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.
For further details, please refer to the full version of the Emerging Trends in Real Estate® Europe 2013.
About the Urban Land Institute
The Urban Land Institute (www.uli.org) 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.
PwC helps organizations and individuals create the value they’re looking for. We’re a network of firms in 158 countries with more than 180,000 people who are committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com.
PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.