Marktbericht Europa Apr09

Sentiment toward European real estate continues to remain poor as banks restrict lending and the space markets weaken.

Executive Summary

• The economic recovery looks to be long and drawn out, although some forward-looking indicators suggest that the first quarter will mark the bottom. Tenants in all sectors of the space markets are under pressure to cut costs.
  
• Due to rising capitalization rates, a broken lending model and deteriorating fundamentals, most markets still have a way to go before investors put capital to work.
  
• Listed property firms have begun raising equity to repair balance sheets, but the sector remains volatile, primarily because of concerns about fundamentals.
  
• Recovery in commercial real estate depends to a large degree on banks, which remain reluctant to lend and face an increase in nonperforming loans as a result of deteriorating space market fundamentals.
  
• Loan-to-value covenants have been breached on a large volume of loans as property values fall. Investors are looking to take advantage of opportunities created by an expected €109 billion shortfall involving maturing debt that can’t be refinanced with the same level of proceeds.