Investors turning again to the North

Mar 18 2008 by Sue Scott, Evening Gazette

PROPERTY yields in the UK are looking more attractive, says global real estate adviser DTZ.

But in its European Quarterly research paper it added European real estate activity would continue to slow through at least the first half of 2008.

Performance will vary widely, dependent on local economic conditions and property fundamentals.

But it added there was strong evidence that international investors were preparing to re-enter the European market, at the right price.

DTZ said the UK market was now approaching “fair value”.

Across Europe, higher property yields are expected with corrections taking place, most notably in secondary cities.

Richard Turner, director of investment in Newcastle, said: “During 2006 and early 2007, the overheating of the UK property market encouraged many buyers to look to a wider European market, seeking better value opportunities.

“However, the whole of Europe has experienced the fallout from a global squeeze on credit.

“The resulting fall in prices has seen a number of buyers returning to their traditional UK market places and while the volume of transactions remains relatively low, investment activity is now returning to the North-east market.”

On current expectations, DTZ anticipates a moderate decline in European transaction volume in the first quarter of 2008.

However, this is very unlikely to surpass the sharp drop witnessed in the previous quarter.

Despite short-term uncertainties, European office properties are expected to remain a popular asset class that will continue to perform well in the medium and longer term; as will prime retail in capitals and major regional cities.

The report identifies Moscow and Istanbul offering potential for continued yield compression.

European Quarterly also reports in detail on the investment wave from the Middle East, much of which conforms to Shari’ah law on the back of a growing Islamic banking and finance sector.

While the UK remains a favoured destination for Middle East investors – 52% of the market - there appears to be some appetite to invest in central and Eastern Europe, along with France and Germany, though the flexibility of the UK’s Shari’ah-compliant real estate investment funds continues to be a major factor in determining the destination of investment.