EUROPE – Institutional investors will target secondary assets in strong markets in 2013 as macro fundamentals prevent an overall secondary recovery, according to a CBRE report published this week.

Despite a continuing focus on prime across European markets, co-author and CBRE EMEA research chairman Peter Damesick indicated demand in the German market was spreading to more secondary assets as investors indicated they were willing to take on a degree of property risk in lower-risk markets.

He cited acquisitions of short-lease assets with strong re-letting potential and action to reposition assets benefiting from supportive demand conditions.

"This does not mean Germany is insulated from the euro-zone troubles – its economy has slowed over the past year as its export markets elsewhere in Europe have weakened," he said. 

"But its performance has been better than those euro-zone economies that are in recession, unemployment is low and the competitiveness and fundamentals of its economy are perceived as sound."

Although macro-predicated interest in secondary is more likely in stronger economies, it could spread from the optimistic investors that currently dominate "selectively" to more institutional investors.

"Appetite for secondary is likely to improve in line with investor sentiment and overall economic conditions – if these strengthen over the course of 2013, then investor risk appetite will improve also," said Damesick.

However, some groups of investors, notably sovereign wealth funds, would continue to focus exclusively on prime, he added.

Despite evidence of selective secondary uptake, the CBRE report claimed the best hope for secondary remained new debt finance as a result of greater appetite for property risk – a prospect it described as "unlikely".

Secondary's resulting reliance on economic fundamentals leaves it vulnerable to continued austerity, although the report pointed to "a whiff of optimism" at the beginning of 2013 that had been completely absent throughout 2012.

"The Greek exit was a risk, but the bigger concern is that it would trigger other market exits," Damesick told IP Real Estate this week.

"[The Draghi Plan] removed that particular threat. It doesn't mean all problems have been solved – Europe is feeling the effects of austerity, and it is in recession – but it was a turning point in sentiment."

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