Investor caution is ‘crippling’ market for prime

A trend of funds ‘sitting on cash’ in huge quantities rather than investing is contributing to a weak outlook for the European market, according a group of real estate experts.

At PropertyEU’s Outlook 2013: European Investment briefing held in London earlier this week, an audience of property professionals heard how ongoing fears among investors and businesses have all but frozen investment throughout Europe.

Speaking at the event, which was hosted by international law firm SJ Berwin, Colliers International head of research & consulting Mark Charlton said that the conditions throughout Europe were stilling ‘crippling investment’ on a large scale. ‘The result is that most corporations are sitting on significant cash piles. US corporates are sitting on about $1.7 tln (EUR 1.3 tln); international business is sitting on about $5 tln,' he said.

He added: ‘Effectively foreign direct investment and business expansions plans are largely on hold’.

Catalyst Capital founding partner Peter Kasch noted that this was particularly true of the companies and funds buying prime real estate. He said: ‘There are now people who are not interested in making money, they’re interested in preserving capital, parking money. They’re not really investors, they are wealth preservationists who will buy that prime space’.

This tendency to sit on cash, Kasch said, was not only a contributor to the inertia in real estate growth but could even prove to be an ‘illogical investment’, particularly once interest rates begin to rise again.

He added: ‘There are a lot of companies that have been kept artificially alive by virtue of the low interest rate and therefore the natural Darwinian clearing process that should have been going on for the last two years has not been happening’.

While in general significant increases in investment remain hard to find, IPD managing director for UK & Ireland Phil Tily said that there were some signs of growth. ‘In a low-growth environment it’s all about specific asset management plays,’ he noted. ‘Investors are looking for areas of possible mispricing in the market place where they can add value by shoring up income streams to maximise their performance levels. It’s select areas of the market’.

The full report on the London Outlook Briefing will appear in the December issue of PropertyEU Magazine