GERMANY - Cross-border investing in property by institutions is becoming more popular and investors should be looking at forming a regional rather than a domestic strategy – that’s the message from the IPD property conference in Wiesbaden.
IPD chairman Rupert Nabarro says: “Cross-border European property investment is going to be an important area for the future.”
Last year 22 billion euros of property was bought by foreign investors in Europe, particularly in the UK and France, says Mark Callender, research director at IPD. Three-quarters of investment in Paris, for example, came from outside France.
“National borders are becoming less important and regional issues are becoming more important,” said Lisette van Doorn-Groniger, director of research and strategy Europe at ING Real Estate Investment Management.
She added that despite a convergence of growth in European countries there are still differences to be exploited which can be used to be diversify a portfolio.
However, says van Doorn-Groniger, when investing regionally one needs to adopt a different investment strategy. For example, the difference in economies must be considered. Immature markets such as Turkey do not have a real investment market in property. Central European countries preparing to join the European Union are seeing their property markets developing.
But the developed Western European property market, van Doorn-Groniger says, follows a mainly cyclical pattern.
After looking at strategic allocation such as a country’s gross domestic product and employment distribution, one should then look at tactical allocation, says van Doorn-Groniger, i.e. – how growth of GDP and employment is linked to rental and capital growth.
But finally one needs to consider the individual sectors. In the office sector, the most volatile, the biggest economies have the lowest risk and lowest yield. Mature, small economies see a somewhat higher income return and yield, and developing markets have the highest risk, yield and income return. The retail market has a similar correlation but is slightly less obvious and it is strongly tied to consumer spending.
IPD’s Callender noted that residential property tends to be a function of unemployment.