Institutional buyers fill gap left by leveraged players

The current credit crisis may be squeezing out some of the leveraged players, but institutional buyers are filling the gap, according to Will Rowson, head of Continental European Acquisitions at ING Real Estate Investment Management. 'The playground for arbitrage has shrunk dramatically - we will see the return of the big battleships as the crisis takes the wind out of the sails of the leveraged buyers,' he said during a presentation last week at a client conference in Amsterdam organised by ING Real Estate Investment Management (ING REIM).

Rowson said he believed that the period of yield compression has come to an end. 'The UK and US markets are now seen as being fully priced. The UK market is pretty much frozen, it has thinned rapidly in the last four to five months. The froth is disappearing. Yields could go up by 50 to 100 basis points.'

While Rowson sees more opportunities in Continental Europe, in particular for prime real estate, he said the market is operating at different speeds. He pointed out that a German fund recently acquired a shopping centre in a major city in Czech Republic for a gross initial yield of 4.5% while an Irish investor purchased an office building on Place Vendome in Paris for 3.75%. 'In Dublin he would be paying 3%, but these are tight yields.'

In the current market conditions, Rowson believes that retail is the best defence. But the competition remains fierce. ING was recently one of nine candidate buyers in an unsuccessful bid for a shopping centre in Germany, he revealed. 'Demand for prime products will continue. Shopping centres are difficult to produce due to zoning issues, and they are scarce in Western Europe. If they are put into a fund, they often don't come out for a very a long time.'

The situation is slightly different in Central and Eastern Europe, he added. 'These markets tend to be less regulated.'

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