Alternative property gains traction in uncertain climate

Highly specialised non-core investments are gaining traction as alternatives to traditional property types, according to the annual Emerging Trends in Real Estate Europe report published by the Urban Land Institute and PricewaterhouseCoopers.

Recommendations for longer-term, non-core investments include solar energy parks and wind farms, identified by interviewees as a growth business; gas storage facilities; and healthcare, hospital and data centres, which offer appeal as a stable income stream.

Recommendations for short-term, non-core investment strategies include buildings in need of refurbishment on the edges of prime districts in major cities; budget hotels, especially in London’s Waterloo, Paddington, King’s Cross or Bishopsgate areas; mezzanine financing for residential developers; and homes in London that could be resold to wealthy individuals from Greece and Italy seeking to own a home in a country that, while in a downturn, remains more economically stable than those two countries.

The economic crisis has left the European real estate industry in limbo, with preferred markets chosen more on their potential as safe havens than high-growth hubs, the report concluded. 'The profound instability is affecting the providers of equity and debt,' said Joe Montgomery, chief executive of ULI Europe. 'We are operating in an environment that is very difficult to model. The uncertainty over the level of banks’ exposure to sovereign debt default, coupled with uncertainty over the regulatory changes introduced as a result, has caused significant elements of the capital markets to be reduced to a state of near-paralysis.'

According to John Forbes, real estate partner at PwC and author of the report, debt will be the main story of 2012. 'There is general pessimism regarding the availability of debt this year, and significantly lenders are the gloomiest of all. A mere 6% of lenders believe that debt will be as available as it was in 2011, with 42% believing that it will be moderately less available and 52% believing that it will be substantially less. This will be a huge challenge for many, but will create opportunities for others, in particular equity investors less reliant on debt, those who are able to take advantage of the opportunities from bank deleveraging and new debt providers entering the market. '

The annual Emerging Trends report includes interviews with and surveys of more than 600 leading commercial property professionals across Europe. The full article appears in the January/February edition of PropertyEU Magazine. Click on the link below to subscribe: