Following the severe shocks triggered by the financial and economic crisis, the major European property investment markets are now picking up again. Conditions for real estate investment continued to stabilise in the first six months of the year, particularly in Germany but also in France and the UK. At the same time, a greater willingness to invest compared to the second half of 2009 means European transaction volumes in 2010 are expected to significantly exceed the prior-year total. Those are among the findings of fund management company Union Investment in its latest investment climate survey, which was conducted by market research institute Ipsos and involved 185 decision makers at property companies and institutional real estate investment companies in Germany, France and the UK.

Union Investment’s Investment Climate Index, which tracks attitudes and expectations among European real estate professionals at six-month intervals, has moved up to 67.5 points, which is where the index stood in autumn 2009. “The index is approaching the previous all-time high of 68.7 points, recorded in 2007. This general upward trend is feeding off investor optimism in Germany. In Paris and London, the index is currently static at a high level,” says Olaf Janssen, head of property research at Union Investment.

Sentiment towards real estate investment climbed from 66.1 to 67.8 points in Germany, reaching a higher value than the climate index in the other two major European economies for the first time since autumn 2008. The climate index fell slightly by 0.8 in France to 67.5 points and was down one point in the UK (67.2 points). “The recovery in Germany is proving surprisingly strong. It reflects a high level of investor confidence in the performance of the domestic market,” says Janssen. Accordingly, a clear majority (58%) of German investors surveyed anticipate a significant rise in investment demand from abroad over the next twelve months, with 63% of German investors expecting the investment climate to continue improving over the same period.

UK investors expect negative fall-out from the crisis in Greece
59% of French investors are similarly positive about the performance of their home market. By contrast, UK investors display a more sceptical attitude: only 34% believe that the climate for real estate investment in the UK will continue to improve in the short-term. 27% of British investors actually expect it to deteriorate. “Expectations of negative fall-out from the crisis in Greece are very pronounced among UK investors and this has affected the mood,” comments Janssen. A substantial 71% of British investors expect the crisis in Greece to impact current transactions in Europe.

While UK and French investors remain cautious about the economic outlook (46% and 49% of respondents respectively expect the economic outlook in their country to worsen), the situation at company level was rated much more positively in all three countries than at the start of the year. 58% of respondents assume returns for their own company will improve. Companies say they have weathered the market turbulence well over the past twelve months. 81% of the real estate companies surveyed reported that performance was stable or had even improved over the past year.

Growing appetite for risk
“A significantly greater willingness to invest in all three countries suggests that investment activity is returning to normal,” says Janssen. Compared to the previous year, 63% of real estate professionals indicated that investment volumes are set to rise, while fewer than 10% of respondents were expecting levels to fall. The fact that returns are increasingly important when making investment decisions is consistent with this picture. 46% of participants in the study cite “returns” as their key investment motive, compared to 42% for “security” and 10% for “liquidity”. “Investors are clearly willing to raise their risk exposure in exchange for higher returns,” explains Janssen. “This indicates a sustained revival in the European investment markets.”

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Patrizia has joined the German Sustainable Building Council (DGNB). Furthermore, with its new “F 40” development in Frankfurt, Patrizia Projektentwicklung GmbH, is participating in the DGNB pilot project “New Residential Construction” which guarantees sustainable building.

Sustainable residential buildings are also attractive for investors as in view of their lower ancillary costs they offer better letting ratios that are reflected in higher rates of rental increase and a
sustainable performance.

The DGNB criteria comprise the aspects environment, profitability, a socio-cultural form of construction and living, technical quality and process quality. “It is the residents and users of our buildings who are important to us,” emphasizes Kolper. “Alongside even more living value, our aim here is to safeguard the quality in the long term.” As well as the five main criteria, the location of a building is also assessed. With its “F 40” project, Patrizia Projektentwicklung plans to construct 118apartments and an office building in Frankfurt. A residential block with 64 apartments as well as six urban villas with a total of 54 apartments is envisaged for this. The use of renewable energy is planned for the new development in Feuerbachstrasse with hot water collectors and an optimally insulated building shell. The possibility of using geothermic technology is currently being reviewed. Issues such as special comfort are also being taken into account in the planning. A flexible living concept is envisaged that will allow the living space to be adapted to the needs of the residents.

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Hamburg-based Union Investment Real Estate GmbH has leveraged cyclical opportunities in the Seoul investment market to sell the 14-storey HI Building. The office block, which is let on a long-term lease to insurance company HI Investment & Securities and was acquired for open-ended real estate fund UniImmo: Global in 2006, was sold for around 54.800.000.000 KRW (36,5 million Euros) to a local investor, Kochem Co., Ltd. The sale price is 36 % higher than the original investment and approximately 30 % above the most recent expert valuation. “Seoul is one of Asia’s most stable investment markets and is currently extremely popular with both domestic and international investors,” says Dr. Karl-Joseph Hermanns-Engel, member of the management board of Union Investment Real Estate GmbH. “We moved quickly to take advantage of strong investment demand for core properties and lock in excellent gains for the Fund.”

Built in 1986, the HI Building comprises some 13,300 square metres of rental space and is located in the office submarket of Yeouido. Union Investment is still represented in the South Korean capital with the Seoul Mobile Telecom Building, which is held by its institutional Immo-Invest: Europa real estate fund.

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As part of its retained national management role for Ignis UK Property Fund, international real estate advisor Savills has recently received a further instruction to manage the company’s retail offer in Sevenoaks, Kent.

The fully pedestrianised retail scheme comprises approximately 74,000 sq ft (6,874 sq m) across eight buildings and essentially creates the main retail offer on the High Street in Sevenoaks. Savills will manage 48 tenancy’s including Marks & Spencer, Laura Ashley, GAP Kids, Café Rouge, Monsoon, Costa Coffee and Bang & Olufsen.

Sam Pilgrim, associate director at Savills, comments: “The Ignis scheme creates the basis of the main retail element in Sevenoaks and is therefore a fundamental part of the town centre. There is great potential to enhance the already well-established scheme and we are looking forward to working with our client to achieve this.”

The real estate advisor currently manages 46 properties for Ignis UK Property Fund including Royal Avenue House on Kings Road, London and Knights Park in Royal Tunbridge Wells, Kent.

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Acting on behalf of budget health & fitness operator Fitness4Less, Christie + Co has acquired the Fitness First gym in Newport, Wales, for an undisclosed sum.

The club, which is set to undergo a refurbishment programme and reopen in the autumn, will become the company’s fifth site. This deal follows hot on the heels of a recent transaction in Watford and is the group’s first in Wales.

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The strength of economic recovery has fed through into European real estate investment activity, with transaction volumes increasing in the second quarter 2010. Direct commercial real estate investment in Europe in Q2 2010 totalled €23 billion, which is a 15% increase on Q1 (€20 billion) and 80% up on the corresponding period in 2009, according to Jones Lang LaSalle. However on a half-year basis, 2010 European transaction volumes remained stable at €43 billion, compared to H2 2009. General recovery and improved liquidity for larger lot sizes continues apace and the market continues to see increasing numbers of transactions. Looking ahead to the second half of 2010, Jones Lang LaSalle anticipates that the volumes will increase by 35% and reach the €100 billion mark at the year end.

The UK has led the recovery of both transaction volumes and the pricing correction amongst prime assets, and represented 40 percent of overall European investment volumes. UK volumes increased by 30% over the quarter and totalled over €9 billion in Q2. Investor sentiment remains positive although it has tailed off slightly, partly due to the perception that prices have risen too sharply against the weak economic and occupational backdrop.

Julian Stocks, Head of Capital Markets England at Jones Lang LaSalle, said: "We have seen a strong bounce back in activity and pricing so far this year - especially for prime London. However in the last few weeks I have noticed a slight change in sentiment and the balance between buyers and sellers has altered. I expect yields movement to be minimal for the next few months and turnover in England to be similar to 2009.”

We have seen an increased focus on the other large European markets – France, Germany and the Nordics – with a renewed interest in acquiring larger assets within the core and core + segment of the market. However, investors are facing challenges around securing well-let core assets, as debt is becoming more available and increasing numbers of investors are chasing the same narrow band of prime assets. According to Jones Lang LaSalle’s preliminary figures for Q2 2010, there was €4 billion traded in Germany, €2 billion traded in France and €1.4 billion in Sweden, with the largest quarterly increase in France.

Given the strong price correction that has taken place across the region, the Q2 numbers suggest that yields have been stabilizing. The breadth of prime yield compression has slowed down significantly in many core European office markets and we saw inward yield movement in fewer locations over the quarter. Yields did however fall in Helsinki, Paris, Berlin, Frankfurt, Hamburg, Moscow, Madrid and Barcelona.

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Cushman & Wakefield today announced the formation of its Capital Markets Group - Corporate Disposition Practice. Working in close coordination with the firm’s Client Solutions Group, this national Practice is designed to increase efficiency and collaboration among service lines, leveraging the firm’s entire spectrum of expertise in the sale of corporate assets on behalf of its clients. The new group will be led by Richard Ingwers, who has recently been named Vice Chairman at Cushman & Wakefield.

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Instant has appointed Michael Murphy as Chairman of the company. Former Chief Executive of Friends Reunited, Michael has enjoyed a varied career as one of the UK’s most successful serial entrepreneurs. In recent years he has been a board member of organisations including Multimap and Datamonitor, where he was instrumental in significantly increasing their share price.

This will be Michael’s first role in the commercial property sector, where he will be providing strategic counsel to help build the company’s growing reputation as a global leader in both on-line broking of serviced office space and the provision of a unique, full service managed offices operation.

The appointment spearheads a series of appointments being made to strengthen Instant’s team and allow it to capitalise on opportunities in the market and fortify its position as the market leader.

Three key appointments have been made across the business, including Catherine Lister as Marketing Director for the managed offices division, Claire Noble as Online Marketing Director and Nuria Miranda as Global Accounts Manager.

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Invista Real Estate has submitted a revised planning application for its proposed Staines Central office development.

Following a limited architectural competition, Invista have selected architects practice, Tate Hindle, to produce a revised scheme and to refine the original design which has been under review since 2008. During this period, Invista and its development team have worked together to create a revised scheme to meet the changing demands of businesses looking for office space.

The application signals Invista’s renewed intentions to proactively promote the development to potential new occupiers. Joint letting agents on the development are Jones Lang La Salle and Savills who, are already in discussions with a number of potential local occupiers.

The revised planning application is for an 111,500 sq ft, six storey (including ground floor), high quality office building for which Invista is seeking a pre-let agreement before commencing construction. The building also incorporates basement level parking.

As part of the new proposal, the masterplan incorporates a second and third building which could potentially deliver 60,000 and 40,000 sq ft respectively. The strategy is to embark on a programme of phased development in accordance with demand for the space and subsequent lettings secured. Ultimately, Staines Central could deliver up to 211,500 sq ft of office space, integrating landscaping and public spaces into the design.

The proposal incorporates a public boulevard at the heart of the development, with the entrance of the first building designed to act a welcoming gateway to the scheme. The exterior of the building has been designed to stimulate visual interest, with horizontal and vertical timber and translucent glass employed for both aesthetic and energy-saving purposes.

Invista has worked in close consultation with Spelthorne Borough Council to develop a revised scheme which will bring maximum benefits and long term prosperity to the town, and increase the opportunities for attracting new businesses to the town. Invista already has significant investment in Staines through its lease and management of the Elmsleigh Centre.

Nick Howitt, of Invista Real Estate said: "We have reacted to a difficult market by re-grouping as a team to reassess the original plans for the development. We have listened to our advisors and taken on board feedback from market experts to develop a new product which we believe firmly meets the requirements for office space in the economic climate.

"As any commercial property developer would agree, the last two years have been incredibly challenging. We are beginning to see confidence returning to the market, as our decision to submit this revised planning application demonstrates. It represents the next step in an on-going process, and we are delighted to bring renewed focus back to Staines Central."

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Salans has announced that one of the most recognisable names in real estate in Central Europe, Pawel Debowski, plans to join forces with Salans. The team set to join Salans from Clifford Chance includes Piotr Szafarz, Maciej Ryniewicz and Tomasz Stasiak, some core members of Debowski’s highly rated real estate squad which is widely recognised as one of the leading real estate practices in Emerging Europe along with Salans Global Real Estate Group. The date of their moves are as yet unconfirmed.

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On the 1st of July the amendments to the immigration law of Latvia came into effect, which allows foreign investors to obtain a residence permit in Latvia. According to NAI Baltics, these positive changes facilitate the development of country’s economy, but also increase the volume of investments in Latvian real estate by at least 10% annually.

"Annual gross income in Latvia is estimated at 18 billion Euro, - the head of NAI Baltics (representative of international commercial real estate network NAI Global in the Baltic countries) Valdis Ligers commented. - It is believed that changes in the Immigration Act will increase this rate by a further 1 billion euros. This prognosis, of course, is not indisputable, however, we will get at least 10% increase of investments in the Latvian real estate, I’m sure.”

Currently the top ten country-investors in Latvian real estate are Estonia, Sweden, United Kingdom, Netherlands, Norway, Denmark, Lithuania, Cyprus, Russia, and America. Experts also note the increase of interest from investors from the entire East.

"These recent legislative changes in Latvia are very positive first of all for investors from previous CIS countries – comments the head of NAI Pickard (the representative of NAI Global in Ukraine) Terry Pickard. – Firstly, it opens for them the window to Europe, and secondly, it gives an opportunity to have a close look into the Latvian market at the right time: the prices for all types of real estate as a result of the crisis have fallen by 50-80%.”

Currently the investment into residential and commercial property in the Latvian market is roughly equal: 50/50%. According to the analysts of NAI Becar (NAI Global representative in Russia), the yield from rentals in Jurmala are now estimated at about 6% despite the fact, that according to Latvian experts, residential real estate is not popular in Latvia and doesn’t take first place in profitability. Also, according to a new law in the case of re-sale of the property within 5 years, the foreign investors will lose their residence permit. This makes commercial property more attractive.

However, the supply of liquid real estate in the Latvian market is limited. NAI experts believe only 30% of the proposals (based on m²) are interesting, the majority of which are bought out by the subsidiaries of Scandinavian banks. Consequently, no more than 10% of liquid real estate is available to other foreign investors. They cite as an example Club House de Lux in the historic centre of Riga: the property with a total area of 9.6 what generates an income of more than € 16 million on apartment sales and about € 3 million - on sales of offices and € 9, 5 million of investments for construction. This is a prestigious place and profitable business, but there are very few such proposals, which are able to attract foreign investors in Latvia."

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