C&W: global property investment set to fall 17% in 2008

Global investment in commercial real estate will fall 17% in 2008 to $770 bn (EUR 518 bn) after reaching a record $930 bn (EUR 665 bn) in 2007, according to property advisor Cushman & Wakefield. The projected slowdown comes after trading volumes eased by 12.5% between the first and second halves of last year, the company reports in its International Investment Atlas 2008 released today.
Ten of the 15 fastest growing markets were emerging countries including European hotspots such as Ukraine, Turkey, Bulgaria and Hungary.
In Europe, foreign investors now account for the bulk (55%) of the investment market after a 36% increase in 2007 to $349 bn. After record levels of investment in the first six months of the year, the UK saw a 13% decline in the second half in the wake of the global credit crisis. By contrast, Germany and France both booked gains of around 30% while Central and Eastern Europe saw a 47% rise in activity. Turkey, Russia and Ukraine offer higher potential returns, the report concluded, adding these markets will all likely see a further marked increase in investment in 2008.
Michael Rhydderch, head of cross-border investment at Cushman & Wakefield's EMEA operations, sees secondary stock remaining weak across most sectors and jurisdictions unless there is 'a significant improvement' in debt markets. 'There is now a more rigorous appraisal of risk across European markets, especially for secondary assets. Some markets have been affected by the credit crunch less than others, however, with some of the Eastern European markets in particular remaining highly attractive. Investment volumes in these markets should actually increase in 2008.'
Rhydderch believes market prices in the more established Western European countries are adjusting quickly to the new reality. 'We believe capital is starting to flow back into those markets most affected by the credit crunch as prices begin to appear comparatively attractive. Countries like the UK, which have seen values fall significantly, could in fact start to stage a rally in the second half of the year.'
Emerging markets were the strongest performers in 2007 with China appearing in the top 10 global destinations for investment by volume with around $15 bn. Brazil followed with around $14 bn of investment.
David Hutchings, head of research at Cushman & Wakefield's EMEA operations, claims foreign investors will be increasingly important in all global markets in 2008. 'The sovereign wealth funds look set to be particularly active as they take advantage of a change in pricing and a shift in buying power favouring well-financed, long-term institutional players.' For the coming year, Hutchings sees yields moving out by 10 basis points in the UK, Denmark, Norway, Germany and Spain. 'But the further east you go, yields are still compressing.'