Ratings for overall availability, on a scale of one to nine, are the lowest ever recorded by Emerging Trends In Real Estate Europe and there is real uncertainty as to when this trend will reverse.
In its sixth year, the report published by the Urban Land Institute (ULI) and PricewaterhouseCoopers is based on surveys and interviews with nearly 500 of the industry’s leading authorities.
Overwhelmingly, respondents report that it is virtually impossible to get new debt and it will continue to be tough to obtain in 2009. As a result buyers are looking to alternative strategies to keep them in a deal, such as looking for seller financing or talking to the existing lender.
The report also reveals that the current real estate capital markets crisis could turn into an occupier crisis as Europe slides deeper into recession. Economic growth has continued to decline across Europe in 2008 and this trend will follow into 2009 as European economies continue to struggle in current market conditions. Even the fastest growing countries will face production declines through the year ahead and expectations are that it will feed through into tenant demand and a corresponding increase in vacancies with rents stalling or facing a correction
John Forbes, real estate leader in Europe, Middle East and Africa, PricewaterhouseCoopers, said: “This is going to be a tough year for many investors. For those who bought at the top of the market it could be a struggle for survival, particularly if banks become more aggressive in dealing with covenant breaches. On the other hand for those with equity to invest, there will be opportunities as the banks start to take action. Although new debt will remain in very short supply, banks may have little alternative to remaining as lenders during the restructuring of defaulting borrowers."
Investment and development prospects fell for all of the cities ranked in the report, with overall investment prospects dropping from a rating of 5.6 (modestly good) in 2008 to 4.7 (fair) in 2009. Developments prospects fell even further, from 5.6 to 4.3 (modestly poor). Risk ratings have also worsened.
Munich has emerged as the lead real estate investment market in Europe moving up three places from its 2008 rank. However, it is important to remember that although Munich has come out on top this year, each city has fallen when compared to its 2008 rank.
Survey respondents ranked Munich top of the investment market league table due to a combination of factors including: an increase in government spending, which may lead to future economic growth; the decline in unemployment; a fast-growing population and increased consumer spending power. Munich also came top of the European City Risk league table. Munich is seen as having low risk because of its diverse economic base which mitigates risky investments. Indeed Germany is considered "less volatile with more long-term investors" helping Hamburg to second place with Frankfurt and Berlin also ranking among the top ten for investment prospects in 2009.
William Kistler, president of ULI Europe, the Middle East, Africa and India (ULI EMEAI) pointed out that the full impact of the financial crisis was just starting to permeate the economy across Europe, as consumer spending, business confidence and property values continued to decline.
“Everything is being put on hold until we start seeing signs of a bottoming out,” Kistler said. However, despite the overall gloomy conditions, opportunities remain for those who have cash to invest. With interest rates low, and the market generally not overdeveloped, there are bargains available for those who are in a position to buy.”
Survey respondents ranked Istanbul third for investment prospects, falling from first place last year as investors continue to seek opportunities in the city. Istanbul secured the top place for development prospects although investors are still concerned with the risk Istanbul brings, viewing it as the eighth riskiest city in which to invest.
The retail sector has once again been awarded the top spot among property types for investment prospects, only just hanging on to the top spot with the hotel sector following closely behind. Economic development will determine just how rewarding these investments will be. Moscow is the most favoured investment spot among major European cities and nearly half of all respondents regard it as a "buy". Munich, Warsaw, Hamburg and Istanbul also earn marshal investor support. Markets with the highest sell rating include Dublin, Prague, Athens and Madrid and investors are urged to proceed with caution.
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