Property Types <strong>in</strong>
c h a p t e r 4 Retail cont<strong>in</strong>ues to be the jewel <strong>in</strong> the crown. Perspective An <strong>in</strong>dustry struggl<strong>in</strong>g for product has shifted the sector rank<strong>in</strong>gs slightly for <strong>2006</strong>, illustrat<strong>in</strong>g a broaden<strong>in</strong>g appetite for real estate <strong>in</strong> a variety of sectors. The last two years saw a consolidation of <strong>in</strong>vestor <strong>in</strong>terest and appetite towards retail, warehouse, and residential, but this year only retail holds its place at the top as warehouse and residential move down the rank<strong>in</strong>gs—beh<strong>in</strong>d alternative sectors such as hotel and mixed use. City centre office, though still low <strong>in</strong> the rank<strong>in</strong>gs, has shown significant <strong>in</strong>creases <strong>in</strong> its rat<strong>in</strong>g, and now shows modestly good prospects. Of the ten property types <strong>in</strong> our survey, eight have modestly good prospects for total returns while two have fair prospects. This is a significant improvement over last year, when only three sectors had modestly good prospects and six had fair prospects. Overall, there is a general upward trend <strong>in</strong> how sectors are rated; the top spot is rated at a 5.9 rather than 5.8 and the bottom spot—this time manufactur<strong>in</strong>g—takes the place with a rank<strong>in</strong>g of 4.8 compared to bus<strong>in</strong>ess parks and out-of-town offices with 4.5 last year. This would <strong>in</strong>dicate that the larger, and still grow<strong>in</strong>g, appetite for property has seen <strong>in</strong>vestors’ optimism for all sectors elevate as they desperately seek those rare sparks of opportunity. Retail cont<strong>in</strong>ues to be the jewel <strong>in</strong> the crown as retail parks and shopp<strong>in</strong>g centres tie for first position for total return prospects. Clustered with these two retail categories near the top are hotels, which moved up with strengthen<strong>in</strong>g fundamentals, and mixed-use properties, a new category for this year. Mixed use, com<strong>in</strong>g <strong>in</strong> at a respectable fourth place, illustrates that all those trends around susta<strong>in</strong>ability, regeneration, and city centre development are very real and potentially profitable for <strong>in</strong>vestors. The middle of the total return rank<strong>in</strong>gs are anchored by the warehouse sector, which dropped a bit <strong>in</strong> the rank<strong>in</strong>gs but held steady with last year’s rat<strong>in</strong>g of 5.7 (modestly good) for total return prospects. The middle is rounded out by street retail, residential, and city centre office. Street retail is not expected to fair as well as the more suburban retail products. Residential prospects have fallen, <strong>in</strong> part due to fears of overheat<strong>in</strong>g <strong>in</strong> two strong residential markets—the U.K. and Spa<strong>in</strong>. City centre offices, while still low <strong>in</strong> the rank<strong>in</strong>gs, have shown significant improvement, and the sector is now viewed as a good “buy” sector for <strong>2006</strong>. Clearly, the least-favoured sectors for <strong>2006</strong> are bus<strong>in</strong>ess parks/out-of-town office and manufactur<strong>in</strong>g. The bus<strong>in</strong>ess park sector actually moved up from its bottom-place spot last year; with more optimism for a demand-led recovery across <strong>Europe</strong>, <strong>in</strong>vestors are clearly th<strong>in</strong>k<strong>in</strong>g that there could be just a glimmer of opportunity for good, standard, cheaper Class A space on the accessible edge of cities, particularly when put- <strong>Emerg<strong>in</strong>g</strong> <strong>Trends</strong> <strong>in</strong> <strong>Real</strong> Estate ® <strong>Europe</strong> <strong>2006</strong> 49
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