Recession, credit woes rock European property market

CANNES, France - Commercial property values are expected to come under massive pressure across Europe this year, with some cities in France and Spain seeing further corrections of as much as 40 percent, reports said on Tuesday.

By (Reuters)

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Published: Tue 10 Mar 2009, 5:42 PM

Last updated: Thu 2 Apr 2015, 7:44 AM

Euro zone economies are forecast to continue contracting until the second half of 2009, while a lack of available debt will keep investment markets subdued, further depressing values, said researchers at the MIPIM property trade fair.

‘Western Europe is going into a recession that may be deeper and longer than anticipated-the credit-fuelled illusion is over with a vengeance,’ said Angus McIntosh, Head of Research at property agency King Sturge.

‘Central and Eastern Europe will follow with a mixed outcome-some suffering worse than Western Europe,’ he said.

Among the worst-hit markets, King Sturge is forecasting capital values to fall between 25-40 percent in the major cities in France and Spain, while emerging markets like Slovakia, Hungary, and Poland will see drops of as much as 25-35 percent.

The correction is seen milder in Turkey, where capital values are seen falling 12-18 percent this year, while the UK will see another 15-18 percent decline, it said.

Separately, property services company Savills said the economic and financial outlook in Europe is worse than a previous downturn in 2003, and ‘is gradually reflected in weakening occupational demand and higher tenant default risk’.

‘Under the current conditions investors may continue to apply a higher risk premium until the first signs of economic recovery become apparent,’ said Giles Wilcox, European Investment Director for Savills.

LESS DEBT

Credit conditions continue to worsen as Euro zone banks, which toughened credit standards at the end of 2008, say they expect to continue tightening into 2009 albeit at a slower pace, the European Central Bank said in its latest bank lending survey.

Less available debt should keep the investment markets subdued and lead to lower capital values as potential buyers will have to use higher levels of equity, said Savills.

‘Opportunities may arise from distressed or highly leveraged investors and developers who acquired assets at the top of the market,’ it said.

Property researchers expect British properties in particular to look more attractive as they have seen the earliest and sharpest re-pricing, while also benefiting from the pound’s sharp falls, which makes UK assets cheaper to buy.

Benchmark data from real estate performance firm IPD showed commercial property values in the UK have sunk 37.4 percent since the market peaked in June 2007, while consensus forecasts from the Investment Property Forum suggest another 18 percent fall this year and a 3.8 percent drop in 2010.

‘The ‘grave dancers’ with cash to invest, may have a field day. With the collapse of sterling, European and USA investors will see exceptional returns in the UK,’ said King Sturge’s McIntosh.


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