EUR 50bn hovering over European property - JLL

More than EUR 50 bn of equity capital is targeting European commercial real estate this year, Jones Lang LaSalle says in its latest European Capital Markets outlook paper 'Time for Decisions'.

The broker notes that while some estimates of the size of 'war chests of equity' waiting to target distressed assets are overblown, there a long list of investors waiting for the right moment to re-enter the market. The potential buyers include institutions and third party money managers, opportunity funds, international wealth entities and some German open and closed ended funds.

Tony Horrell, head of European Capital Markets at Jones Lang LaSalle says: 'We have no doubt that operating conditions in 2009 will be the most challenging that many in the market have ever encountered, but for those able to look to the medium term and with access to capital we think 2009 will be the year when the market begins to clear and some opportunities will be too good to miss. For the smart investor this year will be about positioning themselves to take advantage of these buy-side opportunities as they emerge.'

The European Capital Markets says real estate debt finance is set to remain limited this year, with low loan-to-value ratios and high margins. Horrell continues: 'We fully expect it will take three to five years for banks to repair their balance sheets and they will only begin to address this problem in 2009. They will most likely be ultra-cautious and conservative in their handling of their outstanding real estate exposure and highly selective in their lending criteria.'

Values across Europe overall have fallen by up to 40% in some markets from their peak in summer 2007, JLL says. The report warns that more value erosion is a certainty in 2009, and for some it will be better to sell now where markets have further to fall. At the fourth quarter 2008 some markets in Europe had recorded yield decompression in excess of 200 basis points since the peak for prime offices and shopping centres, whilst others have yet to experience more than a 50 basis points correction.