GLOBAL - It is not clear whether real estate markets are going through a sustainable phase of recovery or whether it is an illusion driven by capital market liquidity, according to Joe Valente, head of investment strategy at Allianz Real Estate.

Valente told delegates at the Investment Property Databank (IPD) European Conference in Amsterdam, part of the IPD/IPE Real Estate Congress, that investors were still overestimating opportunity and underestimating risk.

He said: "I am not convinced the industry has seen the error of its ways. This industry has not seen the light - so when people talk about going back to fundamentals, or basics, or core, I don't believe a word of it."

Valente argued that investors had not learnt the important lessons from the financial crisis and were returning to their pre-credit crunch ways of chasing yields without enough regard for the underlying fundamentals.

"In every single market and sector - whether New York offices or Singapore retail - there is liquidity on the way up, but it is when things begin to turn that the mystical substance called 'liquidity' disappears - just when you need it. It is that which is driving pricing, together with scarcity, it is nothing to do with the leasing market, nothing to do with the fundamentals."

He added: "Property is not difficult - it is not physics or geography - a company takes space and pays rents. Keep your eyes on rents and the leasing markets; we forget that and each time we do we get our fingers burnt. The real beauty of property is that the market moves ever so slowly. One year ago we were all going to die - 12 months on we are doing sub-4% deals in London and sub-5% deals in suburban Frankfurt. Have we learnt any lessons? No we have not."

Andrew Wood, chief investment officer at MGPA, who also presented at the agreed with Valente and questioned what the industry had learnt from the crisis.

"Fundamentally, we became over-leveraged and over-estimated what the future would hold and once the growth stopped we couldn't pay our debts," he said. "We underestimated risk and over-estimated opportunity. Certainly, recovery is an overused word at the present time."

Fellow speaker Sabina Kalyan, head of European strategy at CBRE Investors, added that the Greek debt crisis and the subsequent eurozone uncertainty had threatened an emerging rental recovery in European markets.

"Any economic growth forecast that you have seen that wasn't made in the last week is very, very optimistic - to put it as kindly as possible - and the chances of a double-dip recession have increased substantially," she said.

"The good news is that this may come at the same time as a devaluation - if the whole euro devalues - then it would help. It would very much help Germany and the Benelux countries, as the exporters of the region, and it would very much help the real estate markets that depend on that export competitiveness."

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