EUROPE - A report published by DTZ offers a largely optimistic prognosis for growth in European real estate markets – at least in 2007.
The report, entitled Money into property, said a 25% increase in global investment transactions worth $600bn last year reflected "a generally benign economic and financial environment…historically low interest rates and ample liquidity".
Authors forecast further sector growth in 2007 because the wall of money in real estate had set off a "virtuous circle" of innovation and product development.
"If you’d wanted to invest as a pension fund 10 years ago, there were limited options," Mike Cutteridge, head of DTZ UK capital markets, told IPE Real Estate.
"KLM would have invested directly in the Netherlands, BA in the UK. It also meant there were limited opportunities for diversification.
"If you invested in retail, you could only buy more retail. Now they’re more likely to invest directly in the domestic market but invest indirectly overseas. There are more products available now – and they’re more liquid, tax-transparent and efficient," he added.
That said, the report also claimed the narrowing or elimination of the yield gap this year would drive investors, especially leveraged investors, into higher-risk development deals in pursuit of returns.
According to the report, the prospects for rental growth and local market factors will guide capital flows in 2007—8.
Cutteridge said pension funds, in the practice of effectively swapping equity risk for property risk, were sufficiently aware of the risks carried by new vehicles and often niche markets.
With improved risk and advice, pension funds "pretty much understand the risk, said Cutteridge, adding, "I would hope they’re in a better position to be advised".