EUROPE - The €2.2bn investor EuroCommercial Properties is increasingly focusing on extending its existing centres to improve its competitive position in a pressured property markets.

The company which manages investments on behalf of European institutions and pension funds said in its first-half results report "prices for the very few good properties that have come to the market have often meant the income yields are now below medium-term interest costs".

As a result, an extension project will start in Norrkoping, Sweden this autumn, as the third of three projects, with a combined value of €130m. ECP said these developments are expected to deliver returns on costs of 7%.

Several other projects in France, Italy and Sweden, which are in the initial planning stage, could see a total investment of €300m over the next 5-7 years, the firm added.

ECP's properties' spread consists of 92% retail, 6% offices and 2% warehouses in its core countries of Italy, France and Sweden.

ECP maintains the view only the most exceptional circumstances could make it accept a dilution of earnings on the purchase of a property.

It has only purchased buildings this year at net yields of over 5% above the company's average cost of borrowing, of approximately 4.6%, as its targeted total return is 8% per annum over 3-5 years.

Given the recent turmoil in the financial markets, ECP is predicting the property sector could be hit "an uneasy equilibrium to continue for the moment, with a reduced likelihood of further yield compression, leading to a plateau in property values".

That said, "tight credit markets might force the sale of some larger properties, creating buying opportunities", the firm added.

ECP reported a 9.9% higher net property income, leading to a 5.2% higher direct investment result of €59m, or €1.67 per depository receipt. An independent valuation has increased its total assets by €219m, or 11%, for the year.

The company's IFRS net asset value rose by 19.7% to €35.21 per depository receipt, compared with €29.41 during the previous year. The IFRS profit after tax increased by 11% to €259.5m, or €7.36 per depository receipt, it said.

Average occupancy level remained at over 99%, measured by both floor area and by income. Its galleries' sales turnover rose by 4.9%, compared to a rise of national retail sales of 4% on average, ECP said.

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