Concerns over construction capacity dampen investors’ enthusiasm
22 February 2007 Press Release
PARIS (February 5, 2007) – High construction costs due to demands created by major projects including Heathrow Terminal 5, King’s Cross and the 2012 Olympics could dampen new development and investment prospects for London over the coming years, according to a report launched at the Urban Land Institute (ULI) European conference in Paris on Feb 5.
Emerging Trends in Real Estate® Europe 2007, published by the ULI and PricewaterhouseCoopers LLP, interviewed almost 400 of the industry’s senior executives to identify Europe’s top cities for real estate investment and the key challenges in the market today.
London was beaten to first place by Paris, despite ranking the lowest for city risk and being the top prospect for rental growth. Survey respondents point to Paris’ economic stability and sustainability – in addition to its status as a global gateway – as major reasons for its top rankings as an investment market. Ample opportunities for urban regeneration and redevelopment in the city together with a balanced supply/demand of projects combine to create ideal conditions for investment in the French capital.
Eastern promise
Beneficiaries of the excess of investment in 2007 are forecast to be the secondary cities that surround metropolitan clusters, such as Reading and Cambridge, and cities in the new emerging markets of Europe such as Bulgaria’s Sofia and Romania’s Bucharest. The decision of investors to “hold” rather than “buy” in 2007 will mean London losing a significant share of the €151 billion invested in European property annually.
Bill Kistler, President of ULI Europe remarked:
“Some of the strongest markets in 2007, such as London, are now becoming “hold” markets because they are close to the end of their cycle and there is a risk that yields will soften. Understanding local property market fundamentals is the key to successful investments in 2007 whether that is appreciating labour force issues in London in the run-up to the Olympics, or rising Eurozone interest rates and heavy levels of household debt in Spain.”
Teutonic triumph
One major trend identified by the report for 2007 is the resurgence of Germany, with Munich and Hamburg ranking in the top 10 for the first time in the report’s history. Munich rose 13 places to fourth place while Hamburg took 9th place after rising five spots. In Munich, rising office demand, a vibrant city centre and educated workforce are key attributes for this city. Around €41bn has been invested in Germany over the last two years and reflects the growing economic optimism in the country.
Kistler adds: “Germany has been resurgent in the last two years. International investors with capital to spend have targeted the market and this has flushed out institutional and government stock. This, combined with improving fundamentals, ensures that Germany will be the hottest market for 2007.”
Ranked table of city return/risk prospects
| 2007 | City | 2006 | Change |
| 1 | Paris | 1 | - |
| 2 | London | 2 | - |
| 3 | Stockholm | 6 | +3 |
| 4 | Munich | 17 | +13 |
| 5 | Lyon | 8 | +3 |
| 6 | Helsinki | 3 | -3 |
| 7 | Madrid | 4 | -3 |
| 8 | Barcelona | 5 | -3 |
| 9 | Hamburg | 14 | +5 |
| 10 | Copenhagen | 9 | -1 |
| (12) | Edinburgh | 10 | -2 |
Packed peaks and secondary cities
While investors remain optimistic about the property sector’s prospects for 2007, they warn the sector is near its peak with European markets awash with money thanks to optimism at home and abroad. Of those interviewed 52 per cent forecast an oversupply of capital in 2007.
Henrik Steinbrecher, European real estate leader, PricewaterhouseCoopers said:
"Despite predictions of a calmer investment environment in 2007 and single-digit returns, equity capital is continuing to pour into the European real estate sector. This trend is expected to continue with strong growth flows from the Middle East, Asia and Australia. Increases in debt capital are also expected, however, rises in interest rates may keep the market in relative balance."
REIT time and place
The report forecasts that the introduction of tax-efficient REITS in Europe is likely to mean consolidation in the sector as companies reposition themselves to take best advantage of the new regimes running in Belgium, Bulgaria, France, Greece, the Netherlands, Turkey and the UK, with Germany and Italy to follow later this year.
Shopping centre of attention
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.
Top investment prospects by asset class
1. European Private Real Estate Vehicles
2. Asian Direct Real Estate Investments
3. European Direct Real Estate Investments
------------------------------------------------------------------------------------------------------------------
Notes to editors
About Emerging Trends in Real Estate Europe 2007
The report released today is the fourth annual European edition of Emerging Trends in Real Estate® Europe 2007. The version covering U.S. real estate has been published for 28 years. Full copies of the European and U.S. reports are available at www.europe.uli.org
About the Urban Land Institute
ULI – the Urban Land Institute is a nonprofit research and education organisation supported by its members.
Founded in 1936, the institute now has more than 34,000 members worldwide, including 2,000 in Europe, which represent the entire spectrum of land use and real estate development disciplines, working in private enterprise and public service.
ULI facilitates the open exchange of ideas, information and experience among local, national and international industry leaders and policy makers dedicated to creating better places. The mission of the Urban Land Institute is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide. Members say that ULI is a trusted idea place where leaders come to grow professionally and personally through sharing, mentoring, and problem solving. With pride, ULI members commit to the best in land use policy and practice.
About PricewaterhouseCoopers
PricewaterhouseCoopers (www.pwc.com) 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.
“PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
------------------------------------------------------------------------------------------------------------------
ULI Europe press contact: James Ralph at 44 (0) 20 7025 6500; mobile: 44 (0) 7889 002305;
e-mail james.ralph@redconsultancy.com
PricewaterhouseCoopers contact in Ukraine: Natalia Blotskaya at (044) 490 6777,
e-mail natalia.blotskaya@ua.pwc.com
PwC contact in UK: Frances Lilley at 44 (0)20 7212 6917;
e-mail frances.lilley@uk.pwc.com
