EUROPE - Jones Lang LaSalle's latest report on direct commercial real estate investment in Europe predicts investors will primarily focus on core Western markets in 2009.
According to JLL's European Capital Markets Bulletin, investors are likely to concentrate on investing in the UK and other transparent markets with low risks in a bid to maintain liquidity in their portfolios.
Tony Horrell, head of European capital markets at JLL, said: "The swift movement in pricing combined with a weak sterling has meant that central London office markets are now seeing the greatest level of investor interest, both in terms of sentiment and transactions completed—we have even begun to see competitive bidding for specific asset types."
Horrell has predicted the sustained price movement in the UK will encourage further price movements in the rest of Europe and produce excellent buying opportunities in 2009.
"Despite a lack of distress in the market, there will be opportunities generated by companies who are seeing their gearing ratios move too far, who will look to dispose of assets. Some of these will literally be once in a generation opportunities to acquire these assets at historically low prices," he said.
JLL expects to see large lot sizes trading at a discount in 2009, given investors' wariness and the tighter lending environment.
"Even where investors have the ability to transact they will not want to put large amounts of equity into a single asset," suggested Nigel Roberts, chairman of European research at JLL.
"In the direct market we expect to see limited activity in lot sizes above €100 million, and only a handful of deals over €250 million," he continued.
Vendors are expected, however, to hold on to prime assets as soon as they see markets beginning to improve.
JLL is predicting there will be a mixed reaction from investors in 2009, with some who have equity or new sources of funding likely to re-enter the market and some expected to remain cautious and concentrate on managing their portfolios.
Active investors are expected to focus on covenant strength and on achieving a better understanding of local market conditions and the outlook for different property sectors.
Corporate occupiers are likely to continue being net sellers in 2009 but also buyers, with some looking to secure headquarter or secondary locations at bargain prices.
Despite the decline is cross-border transaction seen in 2008, JLL does not think this will lead to a greater retrenchment of cross-border activity in 2009.
The UK, Germany and France were the most international markets last year, with the UK attracting investment from 29 nationalities.
UK investors were the largest net sellers in 2009, generating net sales worth €6.4bn. Spanish, Austrian and French investors were also large net sellers. German investors were the most active net buyers, making €3.4bn of net purchases.
Over the year, direct commercial real estate transactions declined by 54% to €112.5bn in 2008.
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