(August 8, 2012) — The difference in demand between the very highest quality real estate and anything less than the best has reached record levels in Europe as investors fear further turmoil is around the corner a leading property specialist has revealed.
The mid-year investment strategy report from LaSalle Investment Management showed the divide between the most sought after leased properties in major markets, and nearly everything else, is wider than ever.
The company said today: “Risk aversion and flight to safety have risen to much higher levels with the price on core and super core real estate increasing over the last six months. Yet pricing for edge-of-core and not-yet-core real estate have not moved much at all.”
LaSalle Investment Management attributed this phenomenon to investor fears about on-going problems in the Eurozone and uncertainty over political situations in several of the dominant countries.
Simon Marx, national director European research and strategy at the company said: “We generally expect that low levels of current and future supply will continue to support prime rents in most markets in the near-term, and offer upside in an eventual recovery, particularly in central submarkets. A number of office markets, such as London, have witnessed an upturn in development activity in response to low availability and this adds to the downside risks, although scarce debt availability will limit this.”
Real estate has remained a firm choice with investors allocating to ‘alternative assets’ due to rent providing regular and often inflation-linked income. A survey by consultants Towers Watson and the Financial Times last month showed real estate investment companies took 40% of pension funds’ alternatives portfolios, 60% from insurance firms’ and 32% from sovereign wealth funds.
Marx at LaSalle Investment Management said: “In this environment (Europe) we recommend that investor’s focus should still be on the markets best able to weather the on-going volatility: Germany, the United Kingdom and the Nordics (and major markets in France cautiously).”