Germany overtakes UK as biggest European market – IPD

EUROPE - The UK has dropped from second to fourth ranking in the global market, according to IPD.

"The UK is no longer the biggest European market in terms of capital deployed. Germany has overtaken the UK and France is just behind," said IPD co-founding director Ian Cullen, speaking at the launch of the IPD's 2008 Global Index at this year's IPD European Investment Conference in Barcelona.

"Two years ago both Germany and France were very much in the second division. The European numbers reflect a new balance of capital power shifting against the UK", Cullen said.

According to the 2008 Global IPD Index, the 2008 total return in US dollars was -10.1%. "Only the solidity of income delivered positive returns", Cullen said.

IPD figures show Global capital returns were -14.7% while the income return was 5.4%.

Cullen said "2008 was the first year where there were no improving returns and saw the largest ever rate of fall in global returns".

Ireland was the worst performing market, at -37.2%, and South Africa which produced +4.4% was the best performer although this reflected domestic inflation at 11.5%.

"If we look purely at the capital element only three markets are positive and these are the last bastions of inflation. Four markets are yet to see any reversal," Cullen continued.

The figures also show that only Ireland and the UK have corrected more than half of their post-millennium hikes in value.

Given the sharp fall seen last year in sterling against both the euro and the US dollar, the UK overtakes Ireland as the weakest national market on a US dollar return basis, at -43.7%, while the strongest performer was Japan, at 22.9%, because of the yen strengthening considerably against the dollar.

The US has been elevated to a position of more capital weight than the whole of Europe put together, largely due to the strength of the US dollar," Cullen noted.

At sector level, Cullen pointed out that office returns had been decimated as a result of the performance of those sectors in the US and UK.

Despite the falls in capital values, IPD figures show that "the estimated size of the professionally-managed global real estate investment market still topped the $4.6trn (€3.3trn) mark."

Cullen concluded: "In a year of globally-synchronized economic recession, it is not surprising that IPD's Global Property Index breaks records in the sharpness and scale of the correction in investment property prices recorded. Perhaps less keenly anticipated was the spread across the 23 constituent markets, with double figure declines in the US and UK diluted by much more muted or delayed responses in the other three biggest markets - Japan, Germany and France."

Commenting on the current crisis, co-founding director Rupert Nabarro noted: "We're in this mess because there are no clear price signals and because we lack the liquidity to do the many of the good things that we could be doing now. Another reason for the mess is the investment objectives we set ourselves - total returns of up to 20%, irrespective of where we are in the cycle.

"We can't remove beta from real estate so when the markets tank is it realistic to set total return objectives when real estate is capable of -15%? Vast amounts of capital have been subject to idiotic fund management decisions," he added.