European investors ready to take on more risk: survey

Conditions for real estate investment continued to stabilise in the first six months of the year, particularly in Germany but also in France and the UK, accordnig to Union Investment's latest investment climate survey. The survey was conducted by market research institute Ipsos and involved 185 decision-makers at property companies and institutional real estate investment companies in Germany, France and the UK.

A greater willingness to invest compared to the second half of 2009 means European transaction volumes in 2010 are expected to significantly exceed the year-earlier level, the survey found. Union Investment’s Investment Climate Index, which tracks attitudes and expectations among European real estate professionals at six-month intervals, has moved up to 67.5 points, which is where the index stood in autumn 2009. 'The index is approaching the previous all-time high of 68.7 points, recorded in 2007. This general upward trend is feeding off investor optimism in Germany. In Paris and London, the index is currently static at a high level,' said Olaf Janssen, head of property research at Union Investment.

Sentiment regarding real estate investment climbed from 66.1 to 67.8 points in Germany, reaching a higher value than the climate index in the other two major European economies for the first time since autumn 2008. The climate index fell slightly by 0.8 in France to 67.5 points and was down one point in the UK (67.2 points). 'The recovery in Germany is proving surprisingly strong. It reflects a high level of investor confidence in the performance of the domestic market,' Janssen said. Accordingly, a clear majority (58%) of German investors surveyed anticipate a significant rise in investment demand from abroad over the next 12 months, with 63% of German investors expecting the investment climate to continue improving over the same period.

The survey found that 59% of French investors are similarly positive about the performance of their home market. By contrast, UK investors display a more sceptical attitude: only 34% believe that the climate for real estate investment in the UK will continue to improve in the short term. 27% of British investors actually expect it to deteriorate. 'Expectations of negative fall-out from the crisis in Greece are very pronounced among UK investors and this has affected the mood,' commented Janssen. A substantial 71% of British investors expect the crisis in Greece to impact current transactions in Europe.

Overall, the significantly greater willingness to invest in all three countries suggests that investment activity is returning to normal, Janssen said. Compared to the previous year, 63% of real estate professionals indicated that investment volumes are set to rise, while fewer than 10% of respondents were expecting levels to fall. The fact that returns are increasingly important when making investment decisions is consistent with this picture. 46% of participants in the study cite 'returns' as their key investment motive, compared to 42% for 'security' and 10% for 'liquidity'. 'Investors are clearly willing to raise their risk exposure in exchange for higher returns,' Janssen noted. 'This indicates a sustained revival in the European investment markets.'