Paris revealed as top investment prospect

Survey Respondents See Less Risk, Higher Returns for European Cities in Year Ahead

BRUSSELS - 14 February, 2007 – Paris leads this year’s list of top real estate investment markets in Europe. This is the most important conclusion from the report “Emerging Trends in Real Estate – Europe 2007”, published by the Urban Land Institute (ULI) and PricewaterhouseCoopers after having interviewed almost 400 of the industry’s leading authorities to identify Europe’s top cities for real estate investment. London, Stockholm and Munich follow Paris in this ranking. Although the study does not put Brussels on the list of “leading cities”, several trends revealed by the survey, indicate a positive investment climate for Brussels.

Bill Kistler, President of ULI Europe, comments on the success of Paris in survey results:
 

“Paris rates highly for both total return prospects and low risk, and thus its risk-adjusted total return prospects were judged the best in Europe. Survey respondents pointed to the city’s economic stability and sustainability, in addition to its status as a global gateway, as major reasons for its top ranking as an investment market. Ample urban regeneration and redevelopment opportunities also attract investors, notes the report. As a top market for the past several years, Paris still has good prospects for the next two years.”
Paris is a favorite among those looking to buy property as well; about 54 per cent of the respondents recommend buying office space in Paris, 57 per cent recommend buying retail, and 41 per cent recommend buying industrial/distribution properties.

London is rated a close second to Paris as an investment market. Survey respondents named London as the European city offering the least investment risk and the best prospects for rental growth, “reflecting optimism for property value trends supported by income growth,” the report says. However concerns over the demands of major construction projects such as King’s Cross, Heathrow Terminal 5 and the 2012 Olympics may have prevented London from taking the top spot. Investors rated London a strong “hold” market, 44 per cent of the participants recommended holding office space in London; nearly 41 per cent advised holding retail; and nearly 59 per cent advised holding industrial/distribution space.

Stockholm, in third place, continues to move up the list for overall investment ratings, as its redevelopment prospects continue to strengthen. A German property investment boom is predicted, taking two spots in the top ten for the first time in the report’s four year history.
Bill Kistler adds: “Germany has been resurgent in the last two years. International investors with capital to spend have targeted the market and this has flushed out institutional and government stock. This, combined with improving fundamentals, ensures that Germany will be the hottest market for 2007.”
Brussels is mentioned as one of the cities with strong “hold” rating together with Copenhagen, Edinburgh, Vienna, Dublin and Amsterdam.

Laurens Narraina, Real Estate Partner at PricewaterhouseCoopers Belgium, comments on this position of Brussels:
“The fact that Brussels is underrepresented in the Global Equity Real Estate Funds implies less volatility and a more stable pricing. Real estate investment in Belgium can still be done with a positive cash flow on the investment due to the positive difference between gross return and borrowing costs. Moreover, the healthy GDP, predicted by World Bank - Moody, explain why Belgium has the potential to be a comfortable place for investments in the future.”
This year’s survey respondents show more reservations compared with earlier editions of the survey and they express the need for creative strategies to address opportunities for property investment and development in the future.
“This is good news”, Narraina comments. “Logistics facilities and distribution warehouses offer quite some potential according to the respondents, and Belgium, still one of the preferred locations in Europe for logistics and distribution, should score well in this context. But also Private Public Partnerships, where Belgium is still at the infancy, offer quite some investment opportunities when carefully managed. In terms of city development prospects, the report ranks Istanbul highest, pointing to its movement as a maturing global market, but also in Brussels, there are huge opportunities for investment in redevelopment.”
Further conclusions of the report are that prospects for profitability are considered favorable for real estate firms of all types, and the report shows that buyers outweigh sellers by two to one. Despite some concerns about foreign investors bidding up prices, few respondents indicated that European real estate is “in the grip of completely irrational exuberance,” the report says. “The assumptions people are making may be optimistic, but not fundamentally ridiculous or irrational.”

In terms of investment worldwide, European private real estate vehicles ranked highest among survey participants, above international equities, European equities, U.S. properties and bonds.

Despite predictions of a calmer investment environment in 2007 and single-digit returns, equity capital is continuing to pour into the European real estate sector. This trend is expected to continue with strong growth flows from the Middle East, Asia and Australia. Increases in debt capital are also expected, however, rises in interest rates may keep the market in relative balance.

The report notes that the “chase for higher yields” is causing investors to look at alternative investment properties as varied as petrol stations, student housing, marinas, motorway services, prisons, car parks and windmills – “anything producing income.” Income-producing infrastructure – such as toll roads, airports, and port and rail facilities – is singled out as a particularly promising investment type. Sustainability is gaining importance among investors and developers. While tenants have yet to demand “green” buildings, a major issue is “when the occupiers are going to take it (sustainable development) seriously,” the report says.

Shopping centres are again expected to produce the highest total returns in 2007, followed by hotels, mixed-use, city centre offices and retail parks. Mixed-use properties are listed as top choice for development and market balance prospects, followed by residential, hotels, warehousing/distribution space and shopping centres. The report notes that sluggish economic prospects in many Western European countries could have a negative impact on consumer spending.

In general, real estate is becoming a global asset class, Emerging Trends notes. “Not only are investors worldwide pouring capital into property – an estimated $600 billion (in U.S. dollars) was purchased directly in 2006 – but they are also crossing frontiers to do so… Five years ago, hardly anyone was ‘Pan-European’; now it is the only way to operate,” the report says.


Notes to editors
  • The report released today is the fourth annual European edition of Emerging Trends in Real Estate®. Full copies of the European report are available at www.uli.org .
  • About the Urban Land Institute
    The Urban Land Institute (     www.uli.org ) is a global nonprofit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide. Established in 1936, the Institute has more than 34,000 members representing all aspects of land use and development disciplines.
  • About PricewaterhouseCoopers
    PricewaterhouseCoopers (     www.pwc.com ) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 140,000 people in 149 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.

    “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.