The outlook for the European real estate industry next year is, in a word, 'grim', says Ian Shepherdson, chief economist at research bureau High Frequency Economics and the opening keynote speaker at the ULI Paris conference on 3 February.

The outlook for the European real estate industry next year is, in a word, 'grim', says Ian Shepherdson, chief economist at research bureau High Frequency Economics and the opening keynote speaker at the ULI Paris conference on 3 February.

The macro-economic environment may be less 'catastrophic' than in 2009, but the legacy of the credit crisis will continue to be felt into 2010 and beyond, he predicts. 'The legacy is a huge amount of spare capacity across the whole economy, including commercial real estate. And because European growth will be sluggish right through 2010 and probably the year after as well, that spare capacity will not be used up'.

Shepherdson, described by the London Times as one of 'the best economists in the City', does not expect to see the rise in vacancy rates in commercial, industrial and retail properties coming down in any meaningful way over the course of next year. As for the financing environment, financing for new projects will continue to be 'difficult', stresses Sherpherdson. 'I would hope that by the end of next year it will be significantly better but that’s far from certain,' he insists.

The fundamental problem, says the economist, who previously worked for HSBC Securities in New York and has been credited with accurately forecasting most developments during the credit crisis, is that 'the banks are overleveraged on almost everything and are trying to reduce their balance sheets everywhere. And they are specifically concerned about commercial real estate.'

All in all, the going will be tough, insists Shepherdson. 'I don’t see the sort of usual cyclical pick-up that you might expect to see.' That doesn't mean to say there won't be pockets of the market in certain countries that do well, he says. 'But I am reluctant to pick sectors that will hugely outperform because I'd be struggling to find any.'

See the February edition of PropertyEU magazine for the full preview of Ian Shepherdson's presentation

Click on the link below to read 'Emerging Trends report: long haul ahead for European real estate'