“Back to Basics”- Property Fundamentals Will Dominate in 2008

Press Release Date: 28 Feb 2008

Property consultants CB Richard Ellis this morning hosted their annual European investment property briefing at which they discussed prevailing trends in the European property market, focussing specifically on activity and opportunities in the UK and German markets.

In light of what has transpired in global financial markets in recent months, the property agents point out that investors need to focus on key fundamentals when investing in property in the current climate. The emphasised that investors now have to focus on prime properties in prime locations with good rental growth potential in order to generate the best returns.

According to Nick Axford, Head of European Research at CB Richard Ellis the European property market saw total turnover in investment markets across Europe up 4% to €240 billion in 2007. He said that notwithstanding changing economic conditions, the property fundamentals in many European cities remain sound, with low vacancy in Grade A office stock in central locations and a limited development pipeline in many markets. He believes that this should result in rental growth in many markets in the coming years.

Peter Schreppel, Head of International Investment in the Frankfurt office of CB Richard Ellis said “Germany is now established as a core investment market in Europe, accounting for 22% of turnover in 2007. We are still seeing large amounts of capital seeking opportunities in the market and this demand is keeping investment yields stable. Many investors, including Irish investors who invested more than €1 billion in Germany in 2007, are focussing on investing in German real estate on the back of the rental growth potential in key cities such as Frankfurt, Munich, Berlin and Hamburg.”

Mike Edwards, Executive Director in the Central London Investment Team of CB Richard Ellis spoke about trends in the Central London property market, which accounted for approximately half of the Irish investment spend in the UK market last year. He said “The re-pricing that occurred in central London in the latter half of 2007, coupled with the fall in interest rates has resulted in renewed demand from Irish buyers and others, most notably German Funds. While value has re-appeared again, few sellers are in a forced position and if anything there now appears to be more buyers than sellers in the market.”

According to CB Richard Ellis, Irish investors spent a total of €4.7 billion on commercial property assets in the UK in 2007, which is higher than original estimates, albeit down on 2006 total spend by Irish investors in the UK of €5.5 billion.

53% of Irish investment in the UK last year comprised private investment while 25% comprised property companies and only 6% comprised institutional investment. Perhaps not surprisingly, the bulk of assets purchased by Irish investors in the UK last year comprised office properties. In total, 63% of investment was in office investments compared to 25% in the retail sector and 4% in the industrial sector.

Rounding up the morning’s presentation, Caroline McCarthy, Head of Overseas Investment for CB Richard Ellis in Dublin commented that “In the current environment, investors need to focus on core property fundamentals of property investment, namely good buildings in prime locations let at sensible market rents. This type of investment should benefit from rental growth in the coming years, which will be the primary driver of performance. The market has now changed from a debt-driven market to an equity driven market, so Irish buyers will be competing with cash investors. To counteract this, Irish buyers will have to have their debt in place and move quickly to get the best property investment opportunities in 2008.”

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