Divergent European Market Performance Will Bring Real Estate Investment Opportunities

At CBRE’s annual European Valuation Seminar, the key theme that emerged was that while there are continued broad threats to the European economy, an understanding of the risks and economics will unmask real estate market opportunities even within a volatile market.

In a week of accelerated change in Europe’s economic and political landscape, the seminar focused on the opportunities that the region could provide for real estate investors given the dual problems of sovereign debt risk and the European banking crisis and the fact that individual European economies are showing widely divergent fortunes.

The opportunities that emerged during the discussion fell into two categories. In markets which are less volatile, with relatively more stable prospects, investors are likely to be drawn to higher quality assets where there is some protection from the economic uncertainty in the more unstable economies.

In more volatile markets, which are likely to be seeing some form of restructuring, investors should be seeking to differentiate between those that can “self-heal” and those that cannot.

Peter Damesick, EMEA Chief Economist, CBRE, commented:
“In 2011, we have seen real estate capital flows shift to Germany, the Nordics and particularly Poland in Central and Eastern Europe, with investors avoiding sovereign debt risk markets and retail property taking a larger share of the market. Looking ahead, low returns from cash and top-rated bonds will continue to make secure property income attractive, with sustained demand for prime assets in core markets. Beyond this, investor perceptions of and reactions to market risk – sovereign debt and growth – will affect appetite for prime assets in non-core markets and for secondary quality assets.”

Guest speaker, Professor Simon Martin, head of research and strategy at Tristan Capital Partners, added: “Capital is being very carefully allocated in this challenging environment. However, investors considering venturing beyond core, prime markets can exploit a wide spread for taking on risk. As the uncertainty clears, investors who have been able to differentiate between those troubled markets that have the ability to self-heal, and those which cannot, may benefit from windfall profits.”