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PWC & Urban Land Institute: Emerging Trends in Real Estate Europe 2007

PWC & Urban Land Institute: Emerging Trends in Real Estate Europe 2007

PARIS, February 7 /PRNewswire/ —

– Survey Respondents See Less Risk, Higher Returns for European Cities inYear Ahead

Paris once again leads this year’s list of top real estate investmentmarkets in Europe, according to the highly regarded real estate investmentreport, Emerging Trends in Real Estate(R) Europe 2007, just published by theUrban Land Institute (ULI) and PricewaterhouseCoopers LLP. Paris rates highlyfor both total return prospects and low risk, and thus its risk-adjustedtotal return prospects are the best in Europe.

Survey respondents point to the city’s economic stability andsustainability — in addition to its status as a global gateway — as majorreasons for its top ranking as an investment market. Ample urban regenerationand redevelopment opportunities also attract investors, notes the report,released today at ULI Europe’s European Property Development and InvestmentConference in Paris. As a top market for the past several years, “Paris stillhas good prospects for the next two years,” the report says.

Paris is a favorite among those looking to buy property as well; about 54percent of the respondents recommend buying office space in Paris, 57 percentrecommend buying retail, and 41 percent recommend buyingindustrial/distribution properties.

ULI, based in Washington, D.C., is a global education and researchinstitute dedicated to responsible land use. Its Europe headquarters, ULIEurope, serves the Institute’s 2,100 European members. PricewaterhouseCoopersLLP is the world’s largest professional services organisation. EmergingTrends, which covers 27 markets in countries throughout Europe, is based onsurveys and interviews with more than 390 of the industry’s leadingauthorities.

As was the case last year, London is rated a close second to Paris as aninvestment market. Survey respondents named London as the European cityoffering the least investment risk and the best prospects for rental growth,”reflecting optimism for property value trends supported by income growth,”the report says. A strong “hold” market, 44 percent of the participantsrecommended holding office space in London; nearly 41 percent advised holdingretail; and nearly 59 percent advised holding industrial/distribution space.

Stockholm, in third place, continues to move up the list for overallinvestment ratings, as its redevelopment prospects continue to strengthen. Itis considered a “balanced” market, in terms of an even distribution of buyand holdsell ratings: 50 percent advising holding office space, 49 percent,retail; and 44 percent, industrial/distribution. Munich is ranked as thefourth best investment market, moving up from 17th place last year. “Risingoffice demand, a vibrant city centre, and an educated workforce createsynergy for this city,” says the report. It is a strong “buy” market, withnearly 65 percent of the survey participants advising buying office pace inMunich; nearly 55 percent, retail space; and nearly 48 percent,industrial/distribution space. Lyon rounds out the top five investmentmarkets, with many respondents viewing that city as an attractive lower-costalternative to Paris. More than 56 percent of the respondents recommendbuying office space in Lyon; more than 62 percent, retail; and more than 47percent, industrial/distribution properties.

Other cities listed as strong “buy” markets: Madrid, Barcelona, Hamburg,Istanbul and Moscow. Other cities with strong “hold” ratings: Copenhagen,Edinburgh, Vienna, Brussels, Dublin and Amsterdam. In addition to Stockholm,other cities with relatively balanced buy-sell-hold ratings: Helsinki,Zurich, Milan, Prague, Rome, Lisbon, Warsaw, Athens, Budapest, Berlin andFrankfurt.

In terms of city development prospects, the report ranks Istanbulhighest, pointing to its movement as a emerging global market. “The marketstill needs many developers rather than pure investors … real estatesectors are now in a learning curve,” notes one respondent. Says another:”Istanbul will be the star of the next decade.”

Emerging Trends notes that prospects for profitability are consideredfavourable for real estate firms of all types, and the report shows thatbuyers outweigh sellers by two to one. Despite some concerns about globalinvestors bidding up prices, few respondents indicated that European realestate is “in the grip of completely irrational exuberance,” the report says.”The assumptions people are making may be optimistic, but not fundamentallyridiculous or irrational.”

In terms of investment worldwide, European private real estate vehiclesranked highest among survey participants, above international equities,European equities, U.S. properties and bonds. Still, despite the optimisticoutlook for European real estate, the report cautions that the double-digitreturns of previous years are not likely to continue. Most respondentsindicated that yield/cap rate compression is largely over and that yieldswill remain stable in 2007. “If you want to make returns, you’d better focuson markets that have good prospects for rental growth,” one participant says.

The report notes that the “chase for higher yields” is causing investorsto look at alternative investment properties as varied as petrol stations,student housing, marinas, motorway services, prisons, car parks and windmills- “anything producing income.” Income-producing infrastructure — such astoll roads, airports, and port and rail facilities — is singled out as aparticularly promising investment type. Sustainability is gaining importanceamong investors and developers. While tenants have yet to demand “green”buildings, a major issue is “when the occupiers are going to take it(sustainable development) seriously,” the report says.

In terms of property types, shopping centres are again expected toproduce the highest total returns in 2007, followed by hotels, mixed-use,city centre offices and retail parks. Mixed-use properties are listed as topchoice for development and market balance prospects, followed by residential,hotels, warehousing/distribution space and shopping centres.

Some Emerging Trends highlights for property sectors: – Office — Outlook: City offices are considered a modestly good investment; prospects for office rent increases have improved, and are now better than for all other property types. City centre office development prospects are seen as modestly good. The best locations for development are generally in all central business districts in continental Europe; the worst are business parks built on greenfield sites. Best bets: Top office markets in which to buy — Hamburg, Munich, Istanbul, Lyon and Paris. Avoid: Dublin, Amsterdam, Edinburgh. – Retail — Outlook: While shopping centres held the top spot as the most- favoured product type, retail parks and street retail have lost ground. Sluggish economic prospects in many western European countries could have a negative impact on consumer spending. Still, potential for total returns and rent increases is viewed as promising. Best bets: Strong buy markets – Moscow, Istanbul, Lyon, Barcelona, and Paris. Avoid: Edinburgh, Amsterdam, and Dublin. – Industrial — Outlook: The rating for warehouse/distribution/logistics facilities continues to feature strongly on institutional investment agendas. However, manufacturing does not fare as well; it is ranked at the bottom for prospects for total returns, rent increases, development and property supply/demand balance. Occupier demand is centred on the main transportation hubs, although some companies have moved to less well-established locations with good access to transportation links, to take advantage of lower labor and property costs. Best bets: Istanbul, Moscow, Barcelona, Hamburg and Budapest are listed as the top “buy” markets. Proceed with caution in Munich, Frankfurt, Berlin. Some Scandinavian markets gain interest among investors. – Hotels — Outlook: The European hospitality sector will remain strong in 2007. Given the strong trading fundamentals, there are no signs of waning investor interest; more than half of the respondents view hotels as a “buy.” The hotel investment market has a growing number of participants, with private equity investors showing strong appetite for the product. Best bets: Resorts in the Mediterranean, two-star properties along the Paris-Rhone axis and budget hotels in Belgium, Germany and the Netherlands. Proceed with caution in Rotterdam and Amsterdam. In eastern Europe, the Russian hotel market is the favourite, including Moscow, St. Petersburg and the regional hubs. – Mixed-Use — Outlook: A major advantage of this sector is that it provides opportunities for investing on a larger scale. At the same time, mixed use is by definition unsuitable for focused funds, and this sector is seen by some as attracting less competition. In the long run, the returns may be higher than the sum of those on the individual components. Offices and retail are considered to make a good match, particularly for occupiers with larger space requirements. Investment opportunities will come from urban regeneration efforts that are emerging in different parts of Europe. Best bets: Large-scale projects in the U.K., France and Germany all offer opportunities. Avoid: Some projects planned in Portugal and Switzerland are viewed as two small- scale to be successful. – Residential — Outlook: The residential sector continues to provide attractive opportunities for investment and development, due to its steady cash flows. This sector is likely to provide modestly good total returns and rent increases for the coming year. Best bets: France remains a favourite among residential property investors. Central and eastern European markets are also seen as offering value, primarily due to the potential of redeveloping housing, much of which is now viewed as poor quality. Larger cities in Poland and the Czech Republic are among those offering substantial opportunities. High housing demand in Turkey also keeps it ripe for investment. Among the places in which caution is advised: Germany. Avoid: By some account, Spain, where the residential prices are largely viewed as “absurd.” Still, other respondents believe demographics in that country will continue to support the high residential prices.

In general, real estate is becoming a global asset class, Emerging Trendsnotes. “Not only are investors worldwide pouring capital into property — anestimated US $600 billion (according to Jones Lang LaSalle) was purchaseddirectly in 2006 — but they are also crossing frontiers to do so … Fiveyears ago, hardly anyone was ‘Pan-European’; now it is the only way tooperate,” the report says.

The report released today is the fourth annual European edition ofEmerging Trends in Real Estate(R). Full copies of the European report areavailable at http://www.uli.org.

The Urban Land Institute (http://www.uli.org) is a global nonprofiteducation and research institute supported by its members. Its mission is toprovide leadership in the responsible use of land and in creating andsustaining thriving communities worldwide. Established in 1936, the Institutehas more than 34,000 members representing all aspects of land use anddevelopment disciplines.

PricewaterhouseCoopers LLP (http://www.pwc.com) is the world’s largestprofessional services organization. Drawing on the knowledge and skills ofmore than 125,000 people in 142 countries, PricewaterhouseCoopers LLP helpsclients solve complex business problems and measurably enhance their abilityto build value, manage risk and improve performance in an Internet-enabledworld.

Web site: http://www.uli.org http://www.pwc.com

Urban Land Institute

Trisha Riggs of the Urban Land Institute, +1-202-624-7086, priggs@uli.org

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