Debt shortage worries European property investors, as London gains in popularity – CBRE
The single biggest threat to the recovery of the European commercial property market is the inability of investors to obtain fresh debt, according to CBRE’s survey of more than 340 leading property investors.
The firm’s latest Real Estate Investor Intentions survey shows that 28% of respondents cited the difficulty of sourcing debt as their main concern, while fears of a double-dip economic recession have risen sharply since last year’s report, to 25% of respondents, and a significant number of those surveyed (24%) are also concerned about a possible break-up of the eurozone.
The shortage of available debt finance is affecting the investment activity of 43% of those surveyed; either because they could not borrow to buy the type of assets they wanted (18%) or because the terms on offer made borrowing uneconomic (26%).
CBRE says its survey suggests that the current focus on prime assets and core markets will continue in 2012, but that there is also significant investor interest in more risky assets: a third of investors surveyed find good secondary property to be attractive, which CBRE feels is “a likely reaction to core markets becoming crowded and in some cases expensive”. The survey of investor intentions points to a likelihood of increased purchasing activity among European investors this year – 35% expect their purchasing activity to be at least 10% higher than in 2011. CBRE cautions, however, that this may not necessarily imply a larger scale of activity – the results were not weighted by the size of the organisation responding, or by their level of purchase/sale activity.
Within Europe, 31% of respondents now see the UK as the most attractive European market for investment, up sharply from the 16% recorded in 2011. Germany is now ranked second at 27% compared with 32% and the attractiveness of CEE markets (19%) has also declined. CBRE feels the increased attractiveness of the UK may be a reaction to the ongoing problems and heightened uncertainty in the eurozone.
At city level, London was named as the most attractive centre for investment by 37% of investors, far ahead of all other cities in the survey. “This is in line with the UK’s position as the most attractive country for investment in 2012 and with London’s specific attractions as a global financial centre and the most active property investment market in Europe,” CBRE says.
By sector, there have been several strong changes in sentiment from last year, with the relative popularity of the markets for retail premises and office space now much lower than it was in 2011. The proportion of respondents naming offices as the most attractive sector fell to 27% from 35% while the figure for retail property fell to 35% from 43%. Within retail, shopping centres are favoured by 19% of investors compared with 23% in 2011, while the proportion that sees high-street retail property as the most attractive has fallen to 7% from 11%. The market for industrial units and logistics property has grown strongly in popularity, now cited by 20% of investors as the most attractive.
“The shift in investor sentiment away from offices and retail in 2012 may reflect perceptions that these sectors are the most exposed to weaker economic prospects and risks of recession now evident in a range of European markets. The cooling of interest in High Street retail and shopping centres in particular can be related to the widespread pressure on consumer spending across economies facing austerity programmes,” CBRE notes, adding: “With prospects for rental growth looking extremely subdued in many markets, the relative attraction of higher income yields on industrial and logistics property is increased.”
