Over 8,500 property investors and advisers converged on the Cote D’Azur for the annual MIPIM (Marché International des Professionels d’immobilier) convention and exhibition in Cannes in the middle of March. They found Europe’s property markets on an upward curve and amid the frantic partying there were also some serious deals to be done. According to property consultants Healey & Baker 1997 saw $13bn of cross-border property deals in Europe, a 27% increase in one year. Foreign property investment in Europe has trebled during the 1990s. The UK emerged as the most favoured location for cross-border property deals again during 1997, but France, Spain, the Netherlands, Ireland,Belgium and central Europe are all seeing increased activity. Healey & Baker’s David Hutchings says that the surge in interest in European property reflects its relative safety in comparison to the investment markets of Asia and Latin America. This sentiment was echoed by Mark Robbins, of the Chicago-based adviser Mesirow Stein. US values have been bid up to a level where we are seeing a new wave of speculative development, and with Asia in turmoil then you have to consider Europe,” he said.

The German investment funds continue to be the dominant players in European property, and for the first time in MIPIM’s nine-year history Germany provided the largest contingent with 203 companies exhibiting, compared with 199 from the UK and 142 from France. According to Hutchings German investors are becoming more outward-looking because of the “stagnation of the German economy, together with strong inflows of cash for the open-ended funds and unattractive domestic yields.”

However, the focus of German investment may be shifting. Some experts expect them to take their profits in London, and spread their international investments into France and Spain. Andrew Yeandle of property consultant Strutt & Parker says that the strong performance of London office investments over the past year has left some German investors sitting on large paper profits.

As an example Yeandle points to Oxford House, 70/88 Oxford Street, London W1 which BfG Immoinvest bought in April 1996 for £22m only to sell it in December 1997 for £37.8m to Land Securities. And the strength of sterling against the DM is exaggerating the effect. Many German funds bought in London in the early 1990s at DM2.35:£1, only to see the exchange rate soar to today’s level of DM3.00:£1.

“The last quarter of 1997 saw dramatic reduction in German activity in London,” said Yeandle. Berndt Knobloch of Frankfurter Hypothekenbank warned that this new trend would be exacerbated by Britain’s failure to sign up for EMU at an early date, as it would increase the range of options open to German funds which did not carry exchange rate risks. Already other European capitals are seeing a surge in German investment, as the open-ended funds look to break into new markets. For example, in Paris, BfG Immoinvest paid FFr 465m ($76.07m) for 28-32 avenue Victor Hugo, reflecting a 6.15% yield.

Another trend reflected at MIPIM was the growing interest among investors in indirect routes into property, and the week saw three new international property funds launched.

Investment bank Lehman Brothers, the French contractor and investor Bouygues and JLW Finance of the UK have joined forces to create the Central European Retail Property Fund, which aims to raise $150m of equity to invest in up to ten hypermarket-anchored shopping centres over the next four years. The fund plans to invest in the Czech Republic, Hungary and Poland - which are all witnessing a retail development boom. And at the same time the Chicago-based fund manager LaSalle Partners has launched LaSalle Partners Real Estate Funds, a newly-created vehicle which will be listed on the Dublin stock exchange. The choice of a Dublin listing means that the fund will be potentially tax-transparent for Dutch, Swedish, Swiss and German investors.

The new fund will provide European investors with a route into US Real Estate Investment Trusts (REITs) through the LaSalle Real Estate Securities Fund.

The third fund is another German open-ended fund, promoted by Schmidt, Germany’s second-largest private bank. The new fund, to be called IC-Invest, plans to raise DM500m to invest in Europe and North America. Unlike most similar funds, the managers will be able to gear up their investment, and the fund will have a lower than usual liquidity ceiling, with a maximum cash holding of only 20% compared to 50% in some comparable funds.

The fund will be domiciled in Luxembourg, although the managers say a flotation on the Amsterdam stock exchange is a long-term goal.”