News »
24. April 2012 
Print
Print
Despite resilience in commercial real estate, forced deleveraging to slow European growth
Despite the economic turmoil, the report reveals that the European commercial real estate market showed resilience in 2011 with 5% growth to €3.25 trillion of invested stock. There were sharp contrasts in trends; UK stock levels shrank (-1% in local currency) whilst the Continent showed a wide range of growth rates, from -6% for the Baltic states to +19% across the CEE countries. This is the result of DTZ Money into Property 2012 Europe report.
Hans Vrensen, Global Head of Research at DTZ, comments: “The 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 € 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.
Hans Vrensen, continues: “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. However, the downside is best represented by the Eurozone break-up scenario. Based on its extensive modeling, DTZ projects significant negative impact on total returns, stock level and investment volumes across the European office markets in this downside scenario.”
Tony McGough, Global Head of Forecasting & Strategy Research at DTZ, said: “In the base case, European invested stock is expected to grow but at a moderate pace of 2% in 2012 and 4% in 2013. However, in the downside scenario, stock is projected to decline by 14% in 2012 and 4% in 2013. Capital values for core European markets are relatively less resilient under our downside scenario. Investment volumes are projected to register an 11% decline in 2012 under the base case, as uncertainties in European financial markets will limit growth on both the debt and equity sides. Again, as we consider the downside, we forecast volumes down 43%.”
Magali Marton, Head of CEMEA Research at DTZ comments: “Plenty of attractive market opportunities remain in Europe. With the DTZ Fair Value IndexTM score stabilizing at 46 for Q1 2012, it might seem there are no clear opportunities. However, with nearly 100 markets covered across the region, there are always some prospects. In particular, all markets in Germany and the UK are now classified as hot or warm. Other selected European markets in CEE and Nordic regions also offer significant growth potential.”
Hans Vrensen, Global Head of Research at DTZ, comments: “The 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 € 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.
Hans Vrensen, continues: “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. However, the downside is best represented by the Eurozone break-up scenario. Based on its extensive modeling, DTZ projects significant negative impact on total returns, stock level and investment volumes across the European office markets in this downside scenario.”
Tony McGough, Global Head of Forecasting & Strategy Research at DTZ, said: “In the base case, European invested stock is expected to grow but at a moderate pace of 2% in 2012 and 4% in 2013. However, in the downside scenario, stock is projected to decline by 14% in 2012 and 4% in 2013. Capital values for core European markets are relatively less resilient under our downside scenario. Investment volumes are projected to register an 11% decline in 2012 under the base case, as uncertainties in European financial markets will limit growth on both the debt and equity sides. Again, as we consider the downside, we forecast volumes down 43%.”
Magali Marton, Head of CEMEA Research at DTZ comments: “Plenty of attractive market opportunities remain in Europe. With the DTZ Fair Value IndexTM score stabilizing at 46 for Q1 2012, it might seem there are no clear opportunities. However, with nearly 100 markets covered across the region, there are always some prospects. In particular, all markets in Germany and the UK are now classified as hot or warm. Other selected European markets in CEE and Nordic regions also offer significant growth potential.”
