Property investment activity remains at historically low levels across the European region. The market has been beset by major uncertainties such as the implications of any Basel III agreement. Thus far, any potential regulations to emerge from the Basel III discussions have not been clarified. The Basel Committee on Banking Supervision is working on proposing internationally agreed rules to improve both the quantity and quality of bank capital and to discourage excessive leverage and risk taking by the November 2010 Seoul Summit. It is intended that, if ratified by the G20, any rules will be implemented by the end of 2012. If these rules are as draconian as some suggest, the impact throughout the property sector could be severe.

Meanwhile, in Germany, the home of the most active international real estate funds, investors are nervous about the potential impact of the government’s proposed new legislation, which is intended to give investors more protection against volatility. The as yet unapproved proposals include a 24-month notice period for withdrawals and a reduction in the value of real estate assets of 10%.

As if these factors were not enough to unsettle the most aggressive of investors, the uncertainty about the continuing existence of the Euro and its volatility against other currencies continues and some notable major investors are beginning to address the hedging issues that arise – back to the bad old pre-Euro days.

The inevitable combined effect of these uncertainties is to narrow the field of activity for most of those investors who are still buying to the prime, most secure real estate. This, in turn, is driving yields down in a few select markets to surprisingly low levels. For the brave with equity to invest, the real opportunities lie in the more secondary markets where historically high yields can be obtained with markedly less competition.

-David Perry

David Perry is Vice President and Regional Director of the EMEA Region at NAI Global.