Industry hunkers down for 'difficult' 2009 - ULI

European real estate professionals are bracing themselves for a 'very difficult' year ahead, according to the report Emerging Trends in Real Estate Europe 2009.

The report - published for the sixth year by the Urban Land Institute (ULI) and PricewaterhouseCoopers - confirms that capital for real estate will continue to be in short supply in both equity and debt markets. The ratings for overall availability, on a scale of one to nine, are the lowest ever recorded by the Emerging Trends report, and there is real uncertainty among the investors, developers, bankers and brokers surveyed as to when this trend will reverse.

Overwhelmingly, respondents report that it is virtually impossible to get new debt and it will continue to be tough to obtain in 2009. As a result, buyers are looking to alternative strategies to keep them in a deal, such as looking for seller financing or talking to the existing lender.

The report also reveals that the current real estate capital markets crisis could turn into an occupier crisis as Europe slides deeper into recession. Economic growth has continued to decline across Europe in 2008 and this trend will follow into 2009 as European economies continue to struggle in current market conditions. Even the fastest growing countries will face production declines through the year ahead and expectations are that the crisis will feed through into tenant demand and a corresponding increase in vacancies with rents stalling or facing a correction.

John Forbes, real estate leader in Europe, Middle East and Africa, PricewaterhouseCoopers: 'This is going to be a tough year for many investors. For those who bought at the top of the market it could be a struggle for survival, particularly if banks become more aggressive in dealing with covenant breaches. On the other hand for those with equity to invest, there will be opportunities as the banks start to take action. Although new debt will remain in very short supply, banks may have little alternative to remaining as lenders during the restructuring of defaulting borrowers.'

The Emerging Trends is based on surveys and interviews with nearly 500 key players in the European real estate industry. The full report is presented at the 13th ULI Europe Annual Conference in Paris on 3 February.