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Moscow named as most attractive European city for real estate investment

In its latest annual European Regional Economic Growth Index LaSalle Investment Management reveals that medium term demand for European real estate will remain highest in large city regions, as well as cities that boast strong fundamentals and high levels of wealth such as London, Paris and Munich.

However, economic strains are taking their toll on Western Europe. London has slipped to second place in 2011 due to a reversal of last year’s gains in GDP and employment growth as well as renewed global financial concerns, which have indirectly impacted the UK’s capital.  However, the city’s wealth and business environment scores still far exceed those of Moscow, which leads the E-REGI rankings on the basis of its growth potential.
‘The polarisation in Europe is the strongest since before the adoption of the single euro currency. The competitive economies of the Nordics, Germany and emerging eastern European markets are forecasted to fare relatively well over the next few years, while the highly-indebted southern European and certain emerging markets are likely to lag,’ said Simon Marrison, European chief executive officer at LaSalle Investment Management.

‘Despite losing its top spot, London is a mature, dynamic and resilient economy which continues to set the pace for the rest of Western Europe. The 2012 Olympic Games will provide a welcome boost through job opportunities, local regeneration and by aiding the hospitality industry,’ he added.

After climbing from tenth to second place in last year’s E-REGI, Moscow has topped the table this year, demonstrating the importance of size and economic growth to a city’s investment potential. Yet, LaSalle believes that a negative business environment score will continue to deter foreign businesses and investors.
Munich has retained its third place and remains ahead of Paris due to its marginally higher growth and business environment score, despite having a slightly lower level of wealth.  Germany is also the country with the highest number of city regions in the top 20, highlighting its relative economic strength, as well as the accelerating polarisation between strong and weak European economies.

Turkey sits alongside Russia as a sizeable emerging economy, which is reflected in Istanbul’s surge from twenty fifth to fifth place. The city is quickly establishing itself as a regional financial centre, whilst the rest of the country is also seeing the benefits of exceptionally high growth.

‘There were clear signs of a slowdown in Europe’s real estate economy during the first half of 2011, coupled with growing uncertainty surrounding sovereign debt. The debt crisis in Europe has entered a new phase, particularly in terms of fiscal integration and the single currency. The next few months will be crucial,’ said Alistair Seaton, European Strategist at LaSalle Investment Management and the report’s author.

‘The E-REGI provides guidance as to what can be expected of the European property markets, identifying the cities that look set to provide the best medium term prospects for occupier demand. As Europe is recovering from a severe crisis and now faces new challenges, dynamic economies such as London and Paris, perform more strongly while less competitive locations, in otherwise robust countries, fall behind,’ he explained.

In the second quarter direct commercial real estate investment in Europe totalled €25 billion, representing a 6% decrease on the first quarter but 4% growth year on year.
The report says that the increase in investment volumes in Turkey and Russia demonstrates that some investors seeking higher returns remain deterred by pricing of prime assets and are therefore looking into alternative markets with more growth potential in preference to weak, secondary markets in established economies.