European property investment volumes and trading activity are back to 2007 levels but investors are far more selective and conscious of risk, delegates heard at PropertyEU’s Global Capital Flows and Investment Opportunities Briefing, which was held in London this week.

European property investment volumes and trading activity are back to 2007 levels but investors are far more selective and conscious of risk, delegates heard at PropertyEU’s Global Capital Flows and Investment Opportunities Briefing, which was held in London this week.

‘The market is more sensible now, there will be no return to 2007,’ said Will Rowson, partner at Hodes Weill & Associates. ‘The big difference is debt, which was driving the market in 2007. Then big managers were paid just to buy, not to perform, while now there is less buying of the wrong assets.’ US investors, who continue to be very active in the European market, are particularly selective, he said.

‘Investors are cautious about risk and about vacancy rates outside the key markets like London or Dublin,’ said Jonathan Hull, managing director of EMEA capital markets at CBRE. ‘In 2007 they would invest in anything, while now they avoid risky assets and are really focused on some key locations such as key central business districts (CBDs).’

The obvious upside of this widespread caution is that the market is more stable and less volatile. The downside is that most investors are looking for the same type of assets, resulting in a very crowded safer end of the market. ‘There is no slackening of global capital coming into Europe, but the key question has become what they will buy,’ said Hull. ‘Places like London have become far too busy, as there is capital from across the globe competing for the same assets, they all want to be in the same CBDs.’

Foreign investors’ caution extends to fiscal issues, certainty of law and currency risk. ‘There is a lot of focus from investors on tax issues and on the management of currency risks,’ said David Ryland, partner at Paul Hastings Europe. ‘There is an enhanced change of law risk and any element of doubt will affect investments into certain jurisdictions.’

‘It is true that the situation now is different as there is less debt, more discipline, more caution and more regulation,’ said Martin Bruhl, senior vice-president and head of investment management – International at Union Investment Real Estate. ‘But there are parallels with 2007 too, such as the flight to core and yield compression.’

According to Bruhl, who has just been elected president of the Royal Institution of Chartered Surveyors (RICS), ‘the real distortion in the market is from artificially low interest rates. Future increases will remove that distortion’. A rise would also show a belief the economy is resilient, so its impact will not be wholly negative. ‘When interest rates do go up it will be all about matching assets and liabilities,’ said Ryland.