Mixed growth in European property markets, says DTZ
The European commercial real estate market showed resilience in 2011 with 5% growth to €3.25trn of invested stock, according to a report from DTZ, part of UGL Services.
The report indicates that despite the economic turmoil, some markets experienced gains. However, there were sharp contrasts in trends. UK stock levels shrank (-1% in local currency) whilst the continental Europe showed a wide range of growth rates, from -6% for the Baltic states to +19% across the CEE countries.
Hans Vrensen, global head of research at DTZ, said main surprise in 2011 was that European debt continued to increase, particularly in the CEE and France.
“However, because equity growth was more robust, there was still resultant deleveraging over the year. At 58%, the average European loan-to-value ratio remains only modestly down from its peak of 62% in 2009.”
New European banking regulations are expected to force further deleveraging and will increase the existing debt funding gap across key European markets.
DTZ’s survey results also reveal that sentiment across lenders and investors has deteriorated. Lenders expect less new lending and tighter conditions, with a further decline in existing loan performance. Investors expect less net investment activity and fear a decline in bank lending. Half of EMEA investors are in talks with their banks on loan amendments.
However, increased activity from non-bank lenders is expected to help bridge the debt funding gap. Europe is probably the most attractive place for these new lenders as the funding gap is the biggest.
Investment transaction volume growth in Europe slowed down in 2011 (+9% in EUR terms). Investors have focused on the most mature markets in Europe (UK, Germany and France). However, relative to stock size, the Nordics and CEE markets were the most liquid last year.
Vrensen notes: “Nearly two thirds of European transaction volumes are represented by domestic investments. But in 2011, we saw more transactions from inter-regional investors, led by American and Asia Pacific fund managers.”
The related uncertainty with the current economic outlook has triggered a return of risk aversion. In response to this, DTZ continues to consider alternative economic scenarios. The base case assumes a slow and steady recovery.