Market ResearchA shortage of real estate and too many buyers have combined to deliver a seller's market for European property, according to a new international survey.
The result is a move into a much broader range of assets and increased risk-taking by investors, according to the latest PricewaterhouseCoopers/Urban Land Institute Emerging Trends in Real Estate Europe study.
The survey suggests a fundamentally positive outlook, this despite some concerns that there may be too much money chasing too few assets. The survey reveals an escalating appetite for European real estate with the path of least resistance to keep buying, with more buyers than sellers.
The survey's authors also warn about the risks inherent when investing abroad. Careful research is needed if the investment overseas is to pay dividends, the authors state.
Investor sentiment is strongly weighted towards "buy" the survey indicates, adding that a major challenge for the remainder of 2006 will be to negotiate the imbalance between investable funds and available assets without overheating the market and driving up prices to a "dangerously unsustainable level", it states.
"Growing numbers of investors, including Irish investors, are now prepared to take development risk. Even speculative development is making a comeback," states PricewaterhouseCoopers Ireland director, real estate, Tim O'Rahilly.
"Of particular interest is that we see the shortage of conventional real estate forcing investors to look at a much broader range of assets than ever before. For example, a huge array of investors are interested in gaining exposure to new areas, such as nursing homes, retirement communities, student housing, self-storage, car-parking facilities, spas, entertainment complexes, airports and other infrastructure assets."
Investor interest continues as ever with safe bets including retail, warehouse and residential. "Retail is by far the jewel in the crown, as retail parks and shopping centres tie for first place for total return prospects," according to the survey results.
A key finding of the report is that Ireland still ranks well in terms of total real estate returns, coming seventh in the list.
The top city returns were from Paris (total risk adjusted return 6.22 per cent), followed by London (total risk adjusted return 6.2 per cent), Helsinki (total risk adjusted return 6.11 per cent), Madrid (total risk adjusted return 5.95 per cent) and Barcelona (total adjusted return 5.91 per cent) with Dublin in 7th place having a total risk adjusted return of 5.83 per cent.
Top ranked cities for development prospects were Istanbul and Moscow - both fast-growing cities with a shortage of modern high-quality assets - but the risks need to be carefully mitigated in any project, the authors indicate.
"Buying abroad can carry risks for the unwary. Investment should only be undertaken having carefully researched the intended market place, including legal and tax issues," states Real Estate Partner at PricewaterhouseCoopers Ireland, Enda Faughnan.
"For example, investors selecting the wrong sector or location, failure to understand local taxes, how title is secured, exit strategies, local succession rights and interstate tax treaties can result in getting badly stung in the long run," he adds.
Faughnan suggests having a local representative available in the local market who can help deal with market, language and cultural issues.
Buyers are moving to different types of investments, the survey indicates but also to new pastures. The sustained downward shift in yields has sent many investors seeking out higher returns to new markets, most of them to the east.
A surprisingly diverse set of investors is now looking at Romania and other nascent central and eastern European markets. However, the big movers are heading to the Far East and India because they offer investment opportunities in larger scale.
The survey was a joint undertaking of the Urban Land Institute (ULI) and PricewaterhouseCoopers. The report provides an outlook on European real estate investment and development trends, real estate finance and capital markets, as well as property sectors.
The report represents the views of over 300 individuals who completed the surveys and/or were interviewed as part of the research process for the report. The panel included individuals from real estate service firms, private property companies, developers, publicly listed property companies, institutional investors, and investment and commercial banks.
