Emerging Trends in Real Estate® Europe 2006 - Urban Land Institute

More documents

Recommendations

Info

“There is no way you can get large amounts of money into this market Exhibit 1-6 Investment Prospects by Asset Class for 2006 Asian Direct Real Estate Investments European Direct Real Estate Investments European Private Real Estate Vehicles European Publicly Listed Real Estate Companies U.S. Direct Real Estate Investments International Equities European Open-Ended Funds European Equities International Bonds European High-Yield Bonds European Investment- Grade Bonds Cash 0.0 1 4.5 5 9.0 9 Abysmal Fair Excellent Source: Emerging Trends in Real Estate Europe 2006 survey. The outlook for Europe’s publicly listed real estate companies is even perkier than the outlook for the wider European equity market, according to those surveyed. This optimism might be due to enthusiasm about the introduction of REIT legislation in the U.K. (although there will be no U.K. REITs before 2007) and the expansion of the SIIC (French REIT) sector in France. Once again, prospects for bonds are deemed to be unexciting, which is not surprising given the low level that yields have been chased to. Meanwhile, cash comes in at the bottom of our survey, which is consistent with the view that big interest rate rises are not in the cards for 2006. Pan-European Investment: the Flexible Friend Pan-European investment will continue to expand in 2006. The usual motivations of diversification and the potential to make higher returns than those available in one’s home market remain. But, on top of this, the flood of money coming in 8 Emerging Trends in Real Estate ® Europe 2006 6.70 6.55 6.48 5.88 5.87 5.78 5.47 5.46 4.95 4.80 4.66 4.21 and the increase in competition that accompanies it mean the big players need more options in order to merely acquire sufficient assets. “There is no way you can get large amounts of money into this market without being pan-European.” “You can’t focus too narrowly; you have to be flexible.” Cross-border investment grew 27 percent during the first half of 2005 in comparison with the same period a year earlier, according to Jones Lang LaSalle, and there is no reason to expect growth will slow in 2006. “Cross-border is an unstoppable trend.” This growth is not due to government initiatives at the European level to foster cross-border investment since there have not been any. In fact, quite the opposite is occurring. “There’s no hope of E.U. harmonisation.” “Property law and tax law will be the last bastions of sovereignty since it’s more or less impossible to harmonise legislation.” What has continued to evolve is transparency and the efficiency of service providers such as lawyers, accountants, and agents. “The Exhibit 1-7 Billions of Euro 120 100 80 60 40 20 0 62.23 23.59 39.64 European Direct Real Estate Investment 72.87 25.05 47.82 2000 2001 2002 2003 2004 1H 2005 Cross-Border Investment Domestic Investment 84.80 33.91 50.89 85.74 40.24 45.50 102.20 46.32 55.88 105.96 58.02 24.07 23.87 2H 2005 Projection Source: Jones Lang LaSalle European Research. Note: Figures exclude Portugal and Denmark. Cross-border investment activity is defined as any direct transaction that involves a foreign buyer or seller. more you do things, the more efficient everybody gets.” “The tax side remains a challenge, but not a barrier.” Legal experts are working hard to try to find holding structures that could enable investors from anywhere to invest at the top level of a fund of funds, but this legal Valhalla has not been discovered yet. So, for the present, building a pan- European portfolio remains the cumbersome bespoke task of stringing together properties in a myriad of special-purpose vehicles under the umbrella of an appropriately domiciled holding company (usually in Luxembourg). On the plus side,
without being pan-European.” Exhibit 1-8 Cross-Border Real Estate Investment Activity by Country 50% 40% 30% 20% 10% 0% Source: Jones Lang LaSalle. a degree of standardisation has crept in among the big law firms that has somewhat reduced the time and expense involved. Documentation is now often done in English with an Anglo-Saxon model for leases. However, a pan-European portfolio remains a much more expensive beast to assemble than its single-country equivalent. For many, the level of expense and complexity is daunting—and this is assuming that you have somehow managed to obtain the assets. For the majority of investors, a local office or a local partner is still needed if one is to have any hope of success in accessing product, even in core markets. As to markets outside the core, “they remain fragmented and lack transparency, which is a huge barrier to doing business unless you partner with someone local.” “Real estate is, and always will be, a local business.” “You have to team up with a long-term local partner who knows the hidden rules.” Ironically, as cross-border investment grows, so does demand for trustworthy expert locals, and the difficulty in finding or retaining them is frequently mentioned. Some local experts who used to work as operating partners with international investors are becoming fund managers themselves as they see more lucrative opportunities to capitalise on their expertise through going it alone with their own fund. Indirect Investment Gets Growing Pains ■ 2000 ■ 2001 ■ 2002 ■ 2003 ■ 2004 ■ 1H 2005 U.K. France Sweden C.E.E. Spain Netherlands Italy Germany Belgium Finland The financial and human resources, critical mass, and local expertise required for pan-European investment continue to push a significant number of those who wish to diversify across borders into indirect investment. Both listed funds and private vehicles continue to multiply and attract new adherents. They are available in every style, sector, and geographical region. Some are diversified and others are specialised. Investing indirectly neatly circumvents many of the obstacles faced by those who wish to go cross-border, making them the preferred route for all but the largest institutions. However, they are not without their problems at present. The number of investors now wishing to get into funds has created a veritable logjam that is likely to persist well beyond 2006. Many of the vehicle managers we interviewed said that they had long waiting lists to get into their funds even after accepting double the amounts they had initially hoped to attract. “People are now deliberately oversubscribing for funds because they know they’re going to be cut back.” “Raising money isn’t the problem—investing it is the problem.” “Not everyone who has raised money will be able to get it all in the market.” More than one client institution admitted, “We assume a certain percentage of the funds in these vehicles will never get invested.” The difficulty of getting money into the market has possibly been responsible for fewer (albeit larger) funds being launched during the first three quarters of 2005, according to INREV. This is a considerable change from the past eight years in which relentless growth in the number of new funds was witnessed in the INREV universe. Another change in trend is occurring in fees. These had previously been declining for several years due to competitive pressures, but fees are now on the rise as experienced fund managers capitalise on increasing demand for their services. Of course, “track record is what you pay for and it is by far the most important factor in fund selection.” Also, under current market conditions Emerging Trends in Real Estate ® Europe 2006 9
Page 1 and 2: $ Urban Land Institute in 2006 Emer
Page 3 and 4: Emerging Trends in Real Estate® Eu
Page 5 and 6: Executive Summary ■ Market opinio
Page 7 and 8: c h a p t e r 1 Deals that might ha
Page 9 and 10: that it is going to stop in 2006. f
Page 11: it did at the start of 2005. Exhibi
Page 15 and 16: to meet promised internal rates of
Page 17 and 18: Europe and is already an accepted e
Page 19 and 20: c h a p t e r 2 There is thwarted c
Page 21 and 22: Exhibit 2-3 Change in Availability
Page 23 and 24: German residential portfolios and n
Page 25 and 26: Exhibit 2-6 Gross Asset Value (GAV)
Page 27 and 28: lamed for driving yields into “cr
Page 29 and 30: one can reconcile the contradictory
Page 31 and 32: ecause many investors prefer these.
Page 33 and 34: Watch Survey respondents consistent
Page 35 and 36: opportunities in 2005 and prospects
Page 37 and 38: Madrid and Barcelona in ageing indu
Page 39 and 40: is down from the high levels of the
Page 41 and 42: Exhibit 3-13 Office Property Buy/Ho
Page 43 and 44: in 2006. Exhibit 3-17 Prospects for
Page 45 and 46: in 2006, largely due to its improve
Page 47 and 48: Exhibit 3-25 Prospects for the Vien
Page 49 and 50: about selling either; it remains a
Page 51 and 52: about the market and overwhelmingly
Page 53 and 54: c h a p t e r 4 Retail continues to
Page 55 and 56: in 2006. Exhibit 4-3 100% 80% 60% 4
Page 57 and 58: in the survey. Exhibit 4-8 Prospect
Page 59 and 60: eflecting increasing investor confi
Page 61 and 62: are more likely to move up than dow
Page 63 and 64:
up the office investment market. Ex
Page 65 and 66:
eturns, rent increases, capital gro
Page 67 and 68:
IMN Conferences Imometrica Antonio
Page 69:
Emerging Trends in Real Estate ® E
show all

Emerging Trends in Real Estate® Europe 2006 - Urban Land Institute

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?