EUROPE - European real estate investors expect 2009 to be a challenging year for equity and debt markets, according to the latest sentiment report by PricewaterhouseCoopers and the Urban Land Institute (ULI).
The Emerging Trends in Real Estate Europe 2009 report - based on surveys and interviews with 500 industry experts - showed respondents fear there will be a lack of debt and expect the continued decline in business confidence, property values and consumer spending will result in an occupier crisis.
"This is going to be a tough year for many investors," said John Forbes, partner at PricewaterhouseCoopers.
"For those who bought at the top of the market it could be a struggle for survival, particularly if banks become more aggressive in dealing with covenant breaches.
"On the other hand, for those investors with equity to invest, there will be opportunities as the banks start to take action. Although new debt will remain in very short supply, banks may have little alternative to remaining as lenders during the restructuring of defaulting borrowers," he added.
According to the report, institutional investors are suffering a denominator effect, as they have over-allocated to property and left themselves insufficient headroom to change their allocation.
It has meant many investors have changed their views that real estate is a low-risk asset and are now applying a ‘wait and see' approach.
"We will be potential buyers in 2009, but with a very conservative approach. We will focus on markets and segments we know well, properties with tenants; properties with certain high-quality technical features," said one respondent.
Those surveyed also expressed concerns that sovereign wealth funds (SWFs) - who have been big players in the real estate market over the last couple of years - do not now have the levels of liquidity as previously thought and are likely to need cash to nurse their domestic investment and financial losses.
The report found, however, buyers were looking at alternatives strategies for staying in the game such as seller financing or talking to their existing lenders.
"The idea of relationship banking is back," said Brian Kilkelly, vice president of global development at ULI Europe.
Germany was the most favoured country for investment prospects with Munich, Hamburg, Berlin and Frankfurt in the top 10 of the investment league.
Respondents ranked Munich as being the top of the investment league and city risk league tables because of its fast growing population, decline in unemployment and increased consumer and government spending.
Munich was followed by Hamburg, Istanbul, Zurich and London, which climbed 10 places from the previous year to become the fifth most-attractive European market.
Dublin was ranked last for investment and development prospects. Prague, Athens and Madrid were also seen as being more risky choices for investors.
Retail was ranked the top property type for investment prospects, followed by Hotel and Mixed Use properties, while Residential was considered the worst property type.
According to PwC's Forbes, respondents' outlook for 2009 "differed depending on whether they were sitting on assets or cash".
William Kistler, president of ULI Europe, the Middle East, Africa and India, said: "With interest rates low, and the market generally not overdeveloped, there are bargains available for those who are in a position to buy."
Most respondents believe the market is going to bottom out towards the end of 2009.
Interviews with respondents, which include members and non-members across Europe, took place between October and December 2008.