European real estate experts tout Moscow’s retail prospects in Emerging Trends in Real Estate ^® Europe 2007.

5 February 2007 — Moscow and Paris — Paris leads this year’s list of top real estate investment markets in Europe, according to a report to be launched at the Urban Land Institute (ULI) European Conference in Paris, on Tuesday. Emerging Trends in Real Estate^® Europe 2007, published by the ULI and PricewaterhouseCoopers, interviewed almost 400 of the industry’s leading authorities to identify Europe’s top cities for real estate investment.

Paris rates highly for both total return prospects and low risk, and so its risk-adjusted total return prospects were judged the best in Europe. Survey respondents pointed to the city’s economic stability and sustainability, in addition to its status as a global gateway, as major reasons for its top ranking as an investment market. Ample urban regeneration and redevelopment opportunities also attract investors. As a top market for the past several years, “Paris still has good prospects for the next two years”, the report says.

London is rated a close second to Paris as an investment market. Survey respondents named London as the European city offering the least investment risk and the best prospects for rental growth, “reflecting optimism for property value trends supported by income growth”, says Emerging Trends. However, concerns over the demands of major construction projects such as King’s Cross, Heathrow Terminal 5 and the 2012 Olympics may have prevented London from taking the top spot. Investors rated London a strong “hold” market, 44 per cent of the participants recommended holding office space in London; nearly 41 per cent advised holding retail; and nearly 59 per cent advised holding industrial/distribution space.

Stockholm, in third place, continues to move up the list for overall investment ratings, as its redevelopment prospects continue to strengthen. It is considered a “balanced” market, in terms of an even distribution of buy and holdsell ratings: 50 per cent advising holding office space, 49 per cent retail, and 44 per cent industrial/distribution.

Other cities listed as strong “buy” markets are Munich, Lyon, Madrid, Barcelona, Hamburg, Istanbul and Moscow. Other cities with strong “hold” ratings are Copenhagen, Edinburgh, Vienna, Brussels, Dublin and Amsterdam. In addition to Stockholm, other cities with relatively balanced buy-sell-hold ratings are Helsinki, Zurich, Milan, Prague, Rome, Lisbon, Warsaw, Athens, Budapest, Berlin and Frankfurt.

In terms of city development prospects, the report ranks Istanbul and Moscow highest, pointing to their movement as maturing global markets. The report says “Moscow and Istanbul are inevitably going to become major investment destinations for pan-European investors”.

The improvement in Moscow’s risk-adjusted total return prospects has propelled the market from 26^th place in 2006 to 19^th place in 2007. Headline news of continued and significant growth in prime office rents, constrained supply, and increased demand for most property types have caught the attention of more foreign and domestic investors and developers. According to one interviewee, difficulties developing in the city centre imply that “office developments will move to the suburbs of Moscow” and there are “massive opportunities for redevelopment, subject to regulation of authorities.” It is viewed as the riskiest city of the 27 in the survey, but it is rated second for total return prospects. In 2006, industrial/distribution had the highest buy recommendations at 74 per cent. But this year retail has the highest mark at 72 per cent, possibly indicating improvement in domestic consumption and household incomes. Moscow received higher buy recommendations for retail than all the cities in the survey.

Richard Gregson, Partner, Leader of the Real Estate group in PricewaterhouseCoopers Russia, commented:

“This year’s report highlights the real estate market in Russia as among the most attractive and priority sectors both for domestic and international investors. The high potential and demand for office, hotel, retail and residential space and a stable increase in disposable income have created a solid platform for the sustainable development of this market for a number of years. However, any player in Russian real estate should balance these positive prospects against the complications that inevitably face an investor in the emerging markets. The respondents of the survey have highlighted the high level of perceived risk of Russian real estate, reflecting the connection between business objectives and the overall situation in the economy. At the same time, the combination of extensive city development and market balance prospects and high risk brings considerable profits. Development of financing is another aspect of potential real estate market growth. This relates to retail and industrial building as well as residential spaces. The development of this area will allow to essentially reduce the level of market risks and thus raise Moscow’s place in the rating of European cities.“

In terms of investment worldwide, European private real estate vehicles ranked highest among survey participants, above international equities, European equities, US properties and bonds.

The report notes that the “chase for higher yields” is causing investors to look at alternative investment properties as varied as petrol stations, student housing, marinas, motorway services, prisons, car parks and windmills — “anything producing income.” Income-producing infrastructure — such as toll roads, airports, and port and rail facilities — is singled out as a particularly promising investment type. Sustainability is gaining importance among investors and developers. While tenants have yet to demand “green” buildings, a major issue is “when the occupiers are going to take it (sustainable development) seriously”, the report says.

Shopping centres are again expected to produce the highest total returns in 2007, followed by hotels, mixed-use, city centre offices and retail parks. Mixed-use properties are listed as top choice for development and market balance prospects, followed by residential, hotels, warehousing/distribution space and shopping centres. The report notes that sluggish economic prospects in many Western European countries could have a negative impact on consumer spending.

In general, real estate is becoming a global asset class, Emerging Trends notes.

“Not only are investors worldwide pouring capital into property — an estimated $600 billion (in US dollars) was purchased directly in 2006 — but they are also crossing frontiers to do so... Five years ago, hardly anyone was ‘Pan-European’; now it is the only way to operate,” the report says.

Notes to editors

1. For more information please contact Vera Totskaya, PR Manager, or Olesya Kuzminskaya, PR Assistant Manager.
2. 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 more than 34,000 members representing all aspects of land use and development disciplines. Its Europe headquarters, ULI Europe, serves the Institute’s 2,100 European members.
3. PricewaterhouseCoopers provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 140,000 people in 149 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.