The global property market has performed well in recent years with Asia providing the most oppo...
The global property market has performed well in recent years with Asia providing the most opportunities for growth.
But uncertainty has crept in, especially in the UK, where a bubble threatens send the market crashing. Asia is attracting the greatest level of interest because growth rates are better and the market is less mature which means huge inefficiencies and opportunities, according to Kiran Patel, global head of research and strategy, at Axa Real Estate Investment Managers.
The US and European markets are similar to each other, he says, but Europe has the edge due to its different levels of maturity and economic profiles.
The three criteria for how attractive a market is are supply, demand and pricing, he explains. Generally demand is weak everywhere in Europe due to slow economic growth and unemployment concerns. Supply is too high because it normally lags behind demand and developers have built too much. But pricing remains attractive compared with other asset classes.
The office markets in France, Italy and Belgium are good and France is attractively priced relative to other countries, according to Patel.
Italy has an attractive supply and demand situation, he says. Tight planning regulations in Milan, which prevent developers from building in new space, mean demand has not been able to run ahead of supply. The centre of Brussels is an attractive area due to demand from government bodies, he adds.
Amsterdam and London are poor markets. Both had a greater propensity for building than many other major European cities so supply is too high, according to Patel. Demand has suffered in London due to lay-offs in the financial, telecommunications and high technology areas.
Cities connected to government, fashion and the chemical or pharmaceutical industries generally have strong demand, including Milan, Barcelona and Rome.
In Europe offices have remained the most liquid traded sector in property, according to Patel. In the retail and industrial sectors there is much owner occupied property, or property held by a corporate entity, he says.
In the UK there is a different picture with much corporate outsourcing. This is where corporations with real estate sell it to raise capital, which they plough back into the core business, and rent the space back on a flexible basis. In the US 76% of office space is rented, in the UK 65%, but in Europe only 33%, according to Patel.
This trend is beginning to take hold in Europe and will benefit property fund managers by providing more potential investments with long-term rent, he says. There are risks with it though ' if one big client rents the space the investment could go sour if they go under.
The residential market has performed well throughout Europe in recent years, but there are signs that a bubble could be emerging in the UK where people tend to be more indebted, says Patel, and most sophisticated investors are now looking to bank profits here.
The residential rented sector in the UK is small ' less than 5% ' according to Patel. Much housing is owner-occupied, owned by housing associations or social housing, he says. Investors are starting to take profits here too because profits are low.
For UK property funds, retail warehousing and industrials are at the top of the shopping list, according to Greg Nicholson, head of investment at CB Hillier Parker.
There has been a polarisation in the market between property which has an income stream that is secure for 15 years or more and that which does not, he says. The strong market for secure income property is driven by uncertainty combined with low interest rates and a lack of enthusiasm for equity markets.
There is a distinct change of heart among investors when it comes to property with a less secure income stream and the office market in London and the South East is particularly weak, he says.
Retail warehousing is the strongest area of the UK property market driven by high demand and low supply, which is caused by planning regulations that make it difficult to develop large retail warehouses and shopping parks.
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