The staff of Deutsche Hypo ... ... the basis of our success

··· 36 ···
The basic conditions on the European commercial
property markets are visibly improving. In terms of
the property sector, more and more cities have
moved out of the doldrums, with key market data
at many investment locations consistently impro-
ving. The end result is that demand for rented
premises is on the rise again and vacancy rates are
falling. Within a short space of time the way the
market has developed has generated greater trans-
parency and more liquidity as well as more diversi-
ty among the market operators. Equity capital and
borrowed capital is flowing into the European pro-
perty markets at unparalleled levels. Added to this
is the fact that the real estate market has grown
more attractive compared with the equity and bond
markets, whilst the increasing shortage of good
and very good properties has sparked fierce com-
petition and, as a result, forced prices up.
Forecasts for the second half of the decade lead us
to expect that the recovery in the European economy
will continue. As this happens, conditions on the
various different property markets, and on the retail
and office property markets in particular, will under-
go consolidation.
As far as Deutsche Hypo is concerned, there may
be opportunities in the markets in which the Bank
has many years' experience for the further positive
development of new mortgage business. Looking
at office property for example, the volume of new
rentals has grown significantly in both London and
Paris. In London in particular, office property prices
have risen considerably following the recovery of
the stock markets, as a result of which demand for
premises from the financial sector is up again.
In the USA the mood barometer for commercial
properties remains positive. The situation in the key
conurbations is marked by high rental prices and
stable occupancy ratios, whilst the largest US pro-
perty market - New York - can be seen to be bene-
fiting from falling vacancy rates and rents that are
on the rise again.
·· CAPITAL MARKET DEVELOPMENT
Positive leading indicators in the eurozone made
for a much brighter outlook at the year-end. Capital
market development in 2006 will hinge on future
inflation expectations, including on the basis of
energy prices.
Following the first interest rate hike by the ECB in
December 2005 and against the background of
moderate wage pressure coupled with little scope
to pass on price increases, we expect to see a
small number of measured interest-rate moves.
The fact that there is still a high level of liquidity
searching for attractive investment opportunities
on the capital markets ought to make the upward
potential of capital market yields appear limited.