GERMANY - German investors have topped a three-market poll of European investor sentiment.

The index, based on 100 interviews conducted by German fund manager Union Investment, found most European property investors expect a further drop in the market, though German investors are less pessimistic than their UK and French counterparts. UK investor sentiment dropped around five points from six months ago, compared with three points in Germany and France.

Union Investment attributed the drop to low expectations of a swift economic recovery.  Index prognostics revealed an 11-point decline among German investors. However, at 67.4, they remain more optimistic that French (49.8) and UK (40.6) investors.  In fact, 44% of UK investors said they believed their domestic market had yet to feel the full impact of the liquidity crisis. 

In contrast, 43% of German investors said they planned to invest more in their domestic market this year than last. Fewer than 10% intend to reduce their investments in 2008, compared with 24% in France and 45% in the UK.

With minimal short-term liquidity concerns, German investors are basing their optimism on positive macroeconomic trends. "The sentiments of the various players about cross-border investments are less optimistic these days than about domestic property investments," said Union Investment spokesman Fabian Hellbusch. "German investors still have an optimistic view on their domestic property market. In their view the macro-economic developments have the strongest impact on the property investment climate in their domestic market."

He added: "Subprime is a more or less abstract phenomenon for German investors that doesn't affect their daily business as the credit crunch obviously does with British investors."

In the meantime, investors in all three markets forecast continuing international interest in the German property market. Of those polled, 46% of German, 52% of UK and 50% of French investors said there would be an increase in foreign capital targeting Germany. The German market will "play a major role" in the investment plans of 68% of the UK investors polled.

"British and the French investors are similar in their pessimistic expectations with regards to their domestic markets," said Hellbusch.

In the meantime, investors in all three markets are assuming defensive positions in core markets, with just under half bolstering their risk-management systems and a third putting new ones in place.