Saturday, May 1, 2010

Investors Shifting Away From London Commercial Real Estate Market

by Property Wire April 30, 2010

Commercial property investors are looking beyond London, where soaring prices and a robust rebound have eroded the prospect of high returns. Instead, interest is growing in France, Germany and the rest of the continent — especially in green office properties. See the following article from Property Wire for more on this.

Surging commercial real estate values in the UK is causing European property investors to shift their focus to the continent as they chase strong returns there, according to property experts.

‘We are seeing much more interesting opportunities on the continent. Pricing in the UK, while it still offers value, is less compelling than it was a year ago,’ Ian Gleeson, chief investment officer of CB Richard Ellis Investors told the London Business School’s Real Estate Conference.

UK commercial property values have risen 13% since July 2009 as the market rebounds from a two year downturn, although the tenant market remains weak with average rents continuing to decline.

Ben Stirling, managing director at Aviva Investors said that the firm estimates ungeared continental property returns at an aggregate 7.5% from 2010 to 2015, compared with its forecast for the UK of about 8.5%.

‘On the face of it, the UK appears attractive from a returns perspective but a lot of the value in the UK is being delivered during the course of this year and we expect the returns profile will be less compelling going forward,’ Stirling said.

Both firms see value in the French and German commercial property markets, while Aviva is also interested in other western European regions, such as the Nordics and Benelux regions. Stirling said he was concerned about debt issues in ‘fringe’ markets such as Spain and Ireland.

But Land Securities chief executive Francis Salway believes prospects are good for the London office property market and the sector looks strong as developers had not overbuilt as they had in the early 2000s.

‘London is a global city , a lot of businesses are not serving Newcastle or Manchester, they are serving Singapore, Hong Kong, New York,’ he said, adding that London firms have continued to plan their expansion in line with global growth.

Meanwhile a new report shows that the French commercial investment market doubled turnover during in the first quarter of 2010 totaling nearly €1.8 billion compared to €0.9 billion in the same period last year, according to figures from Savills.

French investors and German Funds continue to dominate the market, with the exception of the sale of the HSBC headquarters in the Champs Elysées to a Qatar investor for €425 million, the biggest deal of the quarter. Savills research also found a marked increase in domestic private investor spend, up 12% in 2009 up 12%, a trend it expects to continue into 2010.

‘Insurance companies, Mutualists pensions funds and Core pension funds are all actively seeking to acquire new buildings. These office properties are seen as a way to increase the green share of portfolios, a strategic move as investors seek to conform to new regulations as well as end user expectations. To achieve this some investors will now consider speculative development, which they have not done for over two years now,’ said Pascal Rupert, director of investment at Savills Paris.

Investors Shifting Away From London Commercial Real Estate Market

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