Challenging Outlook for Investment in Europe
While investment in emerging markets looks extremely promising for 2010, the outlook for Europe is challenging. However, some countries represent better property investment opportunities than others.
The Jones Lang LaSalle ‘Capital Markets Outlook 2010' examines the investment climate for commercial property in Europe and subtitles its report "Uneven Terrain". On the positive side, the report finds that the worst is now over and that "market drivers are trending up". It also points out that the cyclical nature of property investment means that this has been one of the most profitable times to invest and quotes profit taking in the UK as an example.
However, in spite of the fact that "there will be winners in 2010", Jones Lang LaSalle believes that investment in real estate in Europe faces several key challenges. These include difficulties in establishing pricing levels and the problem of financing - an obstacle facing property investment in most developed countries at the moment. The uneven recovery throughout European economies is an additional issue.
The report claims that equity inflows into the property sector will grow this year with equity capital focussing on "well-let, prime assets". Overall, investment volumes will remain low but considerably higher than 2009. Jones Lang LaSalle expects a year-on-year increase of 20%, taking volumes back to those last seen in 2002.
The report concludes that this year will be an uneven one for investment with some contradictory elements. However, it reiterates that "the mood is decidedly more positive at the start of 2010". The report says that the reasons behind this are "more clarity and certainty over the future", which is both hopeful and a relief.
When it comes to predictions for the European real estate market, Nigel Roberts, the Chairman of EMEA Research at Jones Lang LaSalle divides his forecast into three categories for growth this year. At one end are countries where the property market will bounce back because of a shortage of supply. Examples here include the UK and Russia. Russia has the additional advantage of emerging economy status - the IMF has just increased its GDP growth forecast by 2.1% for Russia.
Next, Mr Roberts believes are the European nations presenting a combination of "stable economies and strong demand drivers". The Scandinavian countries are the main cases in point in this category. This is confirmed by recent price rises in Norway and Finland.
According to Mr Roberts, medium-term investment prospects will be popular this year with investors who have become more cautious in the light of recent economic events. This sector will be looking at countries that are "mature, liquid and have a strong wealth base". Candidates for real estate investment here include France, Germany and Switzerland. Finally, Jones Lang LaSalle believes there may be some resurgence in Central and Eastern Europe this year and next as GDP growth bounces back.
In conclusion, investment in Europe faces a year of mixed results. Obelisk market research points to better investment opportunities elsewhere in the world, particularly emerging markets. Here, strong economic growth and internal consumer demand look set to ensure far greater returns on money than those found in Europe.
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