Investors’ reviews at Expo Real 2012 Munich show that RE projects in centres of cities, generating stable income, still remain the most attractive investment objects in Europe. Because of such attention and demand attractive office markets in London, Paris or Berlin, the capital city of Germany, are considered as significantly hot. Therefore, investors are already searching for new objects in Poland and Czech Republic, some of them enter Slovak and Hungarian markets, however they are not coming to Lithuania yet.
As in every year, Expo Real 2012 in Munich had many visitors – more than 1700 participants from 31 countries – slightly more than last year. The number of visitors also increased. It is possible to assume that higher interest in expositions and RE market was resulted by the turbulent moods in Europe, fear of a new wave of crisis, and a desire to exchange ideas and insights with other participants of the market, trying to achieve a common goal – to protect themselves from possible shocks and steadily develop business in such sensitive circumstances.
Therefore it is natural that the majority of discussions and forums at the exposition were aimed at this direction – where people invest in Europe today? What is the most attractive property for investors? What is the strategy of majority of investors today? Much attention has been given to the development of “green” and energy efficient projects, and increasing attractiveness of such projects for investors and consumers (tenants) has been emphasized. Much attention has been also paid to demographic processes – migration of inhabitants, aging of population in Europe and challenges, which are caused by these processes.
In comparison with the last year, I did not notice significant changes in investors and participants’ opinions: core properties – prestige class objects in the best urban places, which generate stable and reliable cash flow – are the most attractive investment objects in Europe. Currently, the investors agree to purchase the latter objects with a 5-5.5% profitability rate, what amounts to the pre-crisis prices of investment objects. On the one hand, such high level of prices is surprising, when people talk about recession in Europe and European sovereign debt crisis, but on the other hand, it also explains the following phenomenon – investors are not looking for profit now, but simply try to protect their profit and have RE of higher liquidity.
However, the supply of the latter objects is relatively limited and does not satisfy the demand, and this is why some participants of the market think that the markets of business centres in Berlin, Paris and London, which are considered to be safe, have reached their maximum or even slightly hot. For this reason, investors are more and more frequently looking for new and far riskier markets, but also with higher profitability. Warsaw is currently the most consistent with the requirements, thus investors are looking willingly for new objects with profitability rate, at an average of 6.5-7 percent, and the total value of transactions concluded reaches hundreds of millions of Euros. For example, in June Allianz RE bought Platinium Business Park for 173 million EUR, two months later Allianz and Tristan consortium bought Warsaw Financial Center for 210 million EUR. The sums of transactions are impressive indeed. Unfortunately, Lithuania in this place has little to boast of, because it is not interesting to Western investors yet. Today the priority for investors is stability and protection of capital. Meanwhile, Lithuania, frequently amending taxation environment, creates the image of business environment with low reliability, and this is the reason, why the investments, reaching hundreds of millions, do not come to us.
The conference mainly focused on population policies, analysis of current situation, trends of development and arrangement of possible future scenarios. Currently, there are regions, where RE prices are decreasing, even in the safest states, where the increase in RE prices is recorded. The main reason is declining population, thereby decreasing demand. Population change, aging, and changes in ethnic structure lead to an increasing number of new questions about the future demand for housing. RE market in the regions, where the number of people coming from other countries increases, becomes more active, the need of cheap housing is increasing, lease market is growing – these are positive signs for RE developers, and the entire economics. Analysing prospects of Lithuania, challenges related to population changes are also relevant, and in accordance with the experience of Western states, we are able to more accurately predict RE market situation in different regions.
However, Lithuania should not be completely equated with Western states, because Lithuania is a country with fast-growing economy, which is still catching up with Western states, so declining population is likely to have negative impact on the real estate market only in a short term. Meanwhile, in a long term RE prospects remain quite good, because improving economic situation should suppress emigration and increase attractiveness of the country among immigrants. The latter process, as shown by experience of Western states, activates and revitalizes RE market.
More information
Head of Consultation and analysis department of JSC “Inreal valdymas”
Arnoldas Antanavicius
Mob. +370 685 37261
E-mail. [email protected]