Commercial Insurance Articles
European Property Markets: The Outlook for 2010
02 Feb 2010
It seems that the European property market has been picking up over the last few months as countries continue to emerge from the economic downturn.
France and Germany have come out of recession in recent months and the UK was expected to follow suit, but still experienced negative growth during the last quarter.
Despite this, the UK saw rental expectations for commercial property become less negative during the third quarter of the year, according to a report by the Royal Institution of Chartered Surveyors (RICS).
France, the Netherlands and the Republic of Ireland all saw an increasingly optimistic mood among surveyors, with the number of investment bidders per property in the positive.
However, it was not all good news, with rental expectations in the negative for all the European countries surveyed by RICS, large amounts of commercial real estate space available and tenant demand in the negative in all but the UK.
Only Polish surveyors were confident about capital values for the fourth quarter of the year, out of the Europeans questioned.
Nevertheless, investment transaction activity was found to be registering in positive figures in a number of European countries, such as the Netherlands, Switzerland, Belgium, France, the Republic of Ireland and Hungary.
In addition, Germany was among the countries where volume had held steady or turned slightly positive in recent months, the report showed.
"The relatively sluggish economic revival though much of Europe and the US is consistent with the more downbeat results for these regions," said Simon Rubinsohn, chief economist at RICS.
However, recent research commissioned by property investment advisory website Reita found that independent financial advisers (IFAs) in the UK are more positive about the outlook for the commercial real estate market than they have been over the past two years.
The survey found that 68 per cent of IFAs expect the sector to recover before the end of 2010 and 12 per cent believe the upswing will start this year. This is the first time since the beginning of the recession that they have forecasted an improvement for 2009.
According to NMG Research, which conducted the survey on behalf of Reita, just 12 per cent of IFAs expect commercial property prices to drop in the next year. That compares to 40 per cent in July.
By contrast, 60 per cent of advisers forecasted that values would rise over the next 12 months, a significant increase on the 24 per cent who predicted this five months ago.
European investors will no doubt be hoping that continental markets will reflect these predictions. Recent research by Ferguson Partners Europe in conjunction with Urban Land Institute (ULI), found that owners have changed their business plans in line with the uncertain economic environment.
The findings, based on interviews and surveys with around 100 executives from European real estate companies, investment banking, private equity and brokerage firms, banks and property insurance companies, showed that businesses are focused on risk management at the moment.
Respondents said they were looking for every opportunity to reduce outgoings and were concentrating on maintaining stable cash flows. Forging and preserving good relationships with investors and communicating well with lenders were also named as key priorities.
The findings also showed that many of those questioned were encouraged by signs of recovery within Europe's economies and property markets, although the report stressed that it could be "many months" before recovery is seen.
"Companies are focused on strengthening asset management and restructuring teams, as well as finding executives who can interface effectively with disgruntled investors and lenders," said William Ferguson, co-chairman and co-chief executive of FPL Advisory Group.
"Real estate executives are being tested as never before," added William Kistler, president of ULI Europe, Middle East, Africa and India.
On the residential side of the market, the picture is fairly similar, with green shoots of recovery visible. The latest Knight Frank Global House Price Index for the third quarter of 2009 showed that over two-thirds of the countries that saw price changes during the period reported an increase in values.
Switzerland, Norway, Hungary, Luxembourg, the Netherlands, Finland, Sweden, Germany, Slovenia and France all experienced price rises between July and September, the research showed.
Sweden and Germany were among the top performers, registering 2.9 per cent and 2.6 per cent growth respectively, behind the UK's 3.7 per cent improvement.
"Those European countries yet to record their first quarter of growth since the credit crunch include Spain, Denmark and Ireland where an oversupply of stock is holding back prices," said Liam Bailey, head of residential research at Knight Frank.
"This contrasts with the UK, which, despite being hit extremely hard initially, is staging a strong comeback as a shortage of houses for sale is contributing to rising values with demand outstripping supply," he added.
Nevertheless, prices were still down year on year in the majority of countries, with some seeing declines into double figure percentages, such as Denmark, the Republic of Ireland, Bulgaria and the Slovak Republic.
As far as Christopher Chadd, head of research at Property Frontiers, is concerned, this is no bad thing.
"The past decade has seen a global property boom unlike any other," he said.
"Literally hundreds of markets around the world experienced tremendous price increases off the back of speculation and cheap credit.
"The underlying fundamentals in these countries were not strong enough to sustain such booms and as a result we had the, now well-documented, property crash and ensuing recession
"Markets need to correct and stabilise. First and foremost, property markets are dictated by local supply and demand and if the local market is priced out of the market then a market isn't sustainable, and if prices were up year on year we would be in unsustainable territory once again."
Mr Chadd suggested that Spain, France, Italy and Portugal would be among the European countries offering the best potential for investment next year.
Nick Marr, chief executive officer of Homesgofast.com, added Turkey and the Greek islands to that list.
"Investors today want low deposits or properties that require little borrowing and Turkey offers both," he explained.
"Turkey is a holiday hotspot with a proven track record in the holiday industry, a superb climate and, importantly for investors, low prices. I would recommend Bodrum, Kusadasi and Marmaris as areas that provide good returns," Mr Marr added.
