Emerging Trends sees optimism return as 'new normal' gains ground

The European economy will show little improvement in 2013, but there is cause for tempered optimism about the year ahead, the Emerging Trends report claims.

Overall, survey participants were more pessimistic about the outlook for European cities’ property markets than they have been since 2004 and 45% of the respondents expect capital values to remain stagnant until 2017. However, approximately 80% of the respondents polled for the report were upbeat about prospects for their own business.

The tempered optimism is a result of real estate companies restructuring their business over the past five years and now beginning to deploy new strategies to profit in challenging economic and property market conditions. This adaptation to the ‘new norm’ sees businesses mitigating risks wherever possible and focusing capital on specific assets and opportunities rather than adopting pan-regional or sector specific investment positions.

The Emerging Trends report is published annually by the Urban Land Institute (ULI) and PwC. This year's edition marks the 10th anniversary of the survey.

'Almost five years since the start of the financial crisis, real estate investors remain cautious about capital deployment and the availability of debt,' noted Joe Montgomery, chief executive of ULI Europe. 'As a result, investors are focusing on the harder to find opportunities in blue-chip cities such as Munich, Berlin, London and Paris rather than turning to secondary locations in search of higher returns.'

Simon Hardwick, real estate partner at PwC Legal, said: 'Our report shows that real estate investors are approaching opportunities with a new mindset, conscious that the environment in which they are operating is ‘the new normal’ and is set to stay the same for some time yet. Investors face ongoing challenges but are cautiously optimistic about their prospects for the first time in many years.'

One of the areas causing the industry the most concern is the availability of debt and the estimated £350-600 bn (€427-854 bn) lending gap caused by the banks continuing to undertake a structural reduction in commercial real estate lending. The report shows that up to 43% of businesses found it harder to secure debt during 2012, with 56% of the industry expecting there to be less debt available for refinancing and new investment in 2013.

This pessimism is particularly felt in Portugal, Greece and the Benelux countries although a reduction in debt availability is also expected in Spain, Italy and Turkey. In contrast, over 60% of businesses in the UK expect an unchanged or improved borrowing environment, even though individual banks remain reluctant to act as sole lenders on deals of more than £50 mln.

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