Emerging Trends in Real Estate® Europe 2012 - PwC

themselves amongst each other, and hence they are impacted
by what is happening with their peers internationally.”
Interviewees are concerned that the country has weakening
growth prospects for 2012 (latest forecasts have
downgraded GDP estimates to 0.6 percent from 1.9 percent)
because of continuing issues in the Eurozone and strains on
exports. “In the 2008 crisis, the economy quickly rebounded
thanks to decreased interest rates and tax incentives that
made consumption grow rapidly. This time, however, tax
incentives are not planned.”
Interviewees believe transactions will stay subdued during
2012 but are positive about Sweden’s long-term prospects,
saying its relatively strong economic fundamentals will set it
in good stead once investors come to increase allocations to
real estate once again.
Along with the United Kingdom, Germany, and France, it
is considered as one of the solid, core “northern European”
markets. “My international shopping list is London first by a
million miles, then Paris, then German cities in no particular
order of preference. Then Stockholm and Warsaw. After that,
you start to struggle.” “You can’t not have a Nordic investment
as a European property investor,” said another.
Paris (6). Paris is the sixth-most-favoured market overall,
and its retail, office, and hotel sectors are highly rated by
investors looking for acquisitions.
This is somewhat at odds with interviews, where most investors
reported that Paris offered the best opportunities in 2012,
along with London. “The market has scale, liquidity, a reasonably
protected legal framework, and a diverse range of tenants.”
Although it was frequently ranked with London as the
region’s top market, Paris was considered as more attractive
by some because it is less dependent on the financial
sector. “When I compare London to Paris, the first thing is
that London is stretched and the market is more volatile. Real
estate cycles are more pronounced in the U.K. capital.”
Away from the main sectors, investors suggest converting
older office buildings into residential was one opportunity, and
hotels was a promising sector. “Paris’s luxury hotel segment
has doubled in capacity during the last eight years; this
additional supply has been well absorbed, and I think that
demand from tourism in the future will grow at a faster pace
than supply.”
The market is so highly regarded that interviewees are
reporting seeing yield compression in recent months. “Real
estate is like gold; it allows investors to protect their invested
capital. I have seen several private wealthy families investing
in core-plus property in the city at yields below 4 percent.”
But this situation may be the source of negative sentiment; the
focus is on core property, and the supply is limited—which is
why Paris ranked ninth for new investment opportunities.
Some interviewees thought that Paris, like London, had
“passed the peak,” with predictions of a potential rental
decline in the central business district office market as
38 Emerging Trends in Real Estate ® Europe 2012
strains on occupier markets emerge. DTZ Research recently
estimated that Paris’s central business district was 12 percent
overvalued. Investors are also concerned about the prevalence
of short-term leases giving tenants the right to terminate
every three years if the occupational market begins to feel
stress in 2012.
So although Paris has safe and attractive credentials
relative to other markets, it has become a victim of its own
success this year. “The difficulty with Paris and London is that
is where everyone else wants to invest. So investments are
very difficult to make, and that teaches you to look elsewhere.”
ExHIBIT 3-11
Paris
Source: Emerging Trends in Real Estate Europe 2012 survey.
Prospects Rating Ranking
Existing Property Performance Good 3.53 6
New Property Acquisitions Fair 3.34 9
Development Prospects Fair 3.13 7
Investment Prospects
excellent
good
fair
poor
abysmal
2005
2006
2007
2008
2009
2010
2011
2012
Hamburg (7) and Frankfurt (13). Dependable
rather than exciting, Hamburg and Frankfurt will continue to
benefit from interest in stable economic markets this year and
are listed interchangeably with other top markets Paris and
London.
“I like German cities in no particular order.” “Frankfurt,
Hamburg, and Munich are good for all asset types now and in
2012.” “Frankfurt, Munich, and Berlin are always interesting.”
Interest in German assets is such that transaction volumes in
Hamburg for the first three quarters of 2011 were 55 percent
higher than for the same period in 2010.
Surveys rated both Hamburg and Frankfurt in the top five
for residential and office assets. Hamburg also ranked top for
industrial investments, following healthy investment activity
in the warehouse and logistics sector in the wider Hamburg
area, while Frankfurt was third.
Even though demand in Hamburg’s office sector is led by
the public sector, it has a diverse occupier base that includes