Falling Knives

The bearish sentiment expressed in this year’s edition of Emerging Trends does not come as a surprise, but some of the metaphors are disheartening nevertheless. This year’s report, compiled by the Urban Land Institute and PricewaterhouseCoopers, kicks off with a chapter entitled ‘Prepare for the Big Freeze’ in a stark reference to the chilly winds sweeping through the financial sector where Eurohypo and Société Générale have put property lending on ice.

The following quotes from respondents sum up a mood verging on abject despondency: ‘Things are changing by the day and could go catastrophically wrong at any time’; and ‘The situation is total paranoia for financial institutions and operators.’

Typically, most brokers have been putting a brave face on their forecasts for the new year and see the flurry of deals in Q4 2011 as evidence that investment volume is holding up. But some are less sanguine, including respondents interviewed for the Emerging Trends report. The improvement in transaction volume that set in during the third quarter did not yet reflect the turnaround in sentiment following the deterioration of the eurocrisis, they argued. Many expect Q1 2012 data will. ‘Assets are only going to get cheaper so why rush? Who wants to catch a falling knife?’

In this era of zero-growth, negative occupier sentiment and overpriced core assets, investors will need to tread very carefully. Others are coming into their element. The wall of debt is finally starting to crumble and 2011 ended with a sizeable number of European banks releasing loans and assets on the market. Our research shows that Continental players are now joining the queue of banks seeking to offload loanbooks and the flow is expected to quicken this year. With discounts so far averaging 40%, the key question is how much lower can prices go and how will they affect the broader market.

2012 is set to be a pivotal year for the European real estate industry. To draw on the key forecast from last year’s Emerging Trends report, those who have not adapted will die. Some countries, in particular the PIIGS, will remain no-go territory for most. Even stalwarts like the UK and France are no longer perceived as the safe havens they once were. Both countries have fallen out of favour with investors, according to INREV’s Investment Intentions survey. The few beacons left in these troubled waters include Germany and the Nordics. Not entirely coincidentally, the January/February edition of PropertyEU contains features on both.

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