Global direct investment in real estate was up 12% in 2004 to e367bn according to DEGI’s Global Values study. The real estate investment management arm of Allianz analysed 50 international property markets. It found that the proportion of cross-border real estate investment increasing by 21% in 2004 to e79.4bn.
Investments are increasingly being made in locations still regarded as exotic. “This trend will gain in strength because ongoing globalisation and a shift in the key growth areas represent major challenges, especially for the European real estate markets,” said DEGI’s head of research and strategy, Dr Thomas Beyerle.
Bärbel Schomberg, speaker of the DEGI management board, said structured market analysis was essential for long-term success in real estate investments.
“Property investors who focus exclusively on single buildings will not realise their full potential and structurally will not be able to hold their own in the market,” he said. “As in all capital markets, it’s crucial
to analyse opportunities and risks separately on
a regional, cyclical, structural and investment
object basis.”
n A review of the UK property market produced by F&C Property Asset Management has forecast total returns of 15-16% for 2005.
The company believes that sector performance will converge this year and the drivers of outperformance will become property selection and asset management. A lack of quality stock and large lot sizes have led to strong competition, with high prices being paid. F&C said there was evidence of profit-taking among some investors.
The review claimed there was concern that the investment market had run ahead of itself this year. Yields have continued to fall due to weight of money chasing assets but prospects for further yield compression are limited. The review suggests that consensus economic growth rates are unlikely to stimulate rental growth significantly.
In the medium term F&C expects property to deliver steady total returns in the high single digits. Town centre retail is being forecast to underperform, hit
by structural as well as cyclical issues, while
offices, especially those in central London, are expected to outperform as they recover from recent lows.
The growth of the property market is expected to enlarge the choice of suitable assets, with investors looking to continental Europe, second-tier office centres, leisure, student housing sectors and more flexible investment vehicles.
Aberdeen Property Investors’ latest European Outlook has found total returns on property declining across the whole continent.
The average has fallen to 9.3% in 2005 compared with 10.4% last year. Italy topped the chart with 12.1% for total return. Germany has posted the lowest figures over the past two years and the trend has continued,with an estimated 3.3% total return
this year.
Aberdeen believes retail premises will continue to generate higher returns than offices in most European markets. Historically, offices have been the weakest segment of the European market and Aberdeen expects this to continue.
The company attributes its pessimism to
weak service sector employment growth and relatively brisk construction activity (increasing capacity and vacancy). However, Aberdeen
is beginning to see an improvement in rental levels for offices in Dublin, London, Oslo and Paris.
Conversely, in the UK Aberdeen expects the uplift in office rents in London to cause offices to outperform the retail sector. The latter has been eroded by weak consumer confidence.