Skip to content

European property market faces torrid year as shell shocked investors shy away

Confidence and sentiment is poor, according to a report published by the Urban Land Institute and Pricewaterhouse Coopers.

In a survey of 500 organisations it found there is uncertainty about investing in property and that US and European pension funds and sovereign wealth funds are likely to batten down the hatches rather than invest in real estate.

Capital for real estate will continue to be in short supply in 2009. 'People are unsure about how much equity is out there to invest in property and there are a number of issues surrounding when it will come back to real estate,' said John Forbes, PwC real estate leader in Europe, the Middle East and Africa.

He said that the 'denominator effect', whereby institutions have become overexposed to property because of the falling values of other investments, is expected to continue to have an impact on pension funds in 2009.

Analysts say that there is no headroom for institutions to increase their allocation to property and many may cut investment in this sector. The report states that many institutional investors are 'in retreat', and that their perception of real estate as a low-volatility asset class had changed because of the fast U-turn in markets.

Some respondents to the survey said investors are so shell shocked by the global economic turmoil that they are unable to do anything.

'Although institutions like pension funds may still have steady streams of cash coming in, their investment portfolios have been pummelled by stockmarket gyrations and their target allocations are in disarray,' it says.

Doubts are also raised over the ability of sovereign wealth funds to invest in property, as they nurse 'big losses' on their equities and other investments, it concludes.