Salient to Investors:

Europe’s biggest real estate managers are making their first investments in southern Europe since the financial crisis as low prices and diminishing risk make commercial properties more attractive.

Anne Kavanagh at Axa Real Estate Investment Managers said we are at or near the bottom and starting to see a rotation from defensive to riskier investment, and sees more reality in European pricing than 12 months ago. Countries such as Germany and the UK attract the bulk of investments because of their reputations as havens.

Insurance companies, private-equity firms and sovereign-wealth funds are seeking deals in Spain and Italy as the economic prospects for the countries improve and the likelihood of a euro-currency breakup recedes. Investors are targeting hotels, homes, offices and warehouses, insurers are focused on modern, high-occupancy office buildings on busy streets, private-equity firms are targeting distressed homes held by Spain’s Sareb.

Georg Allendorf at Deutsche Bank Asset & Wealth Mgmt is considering buying real estate in southern Europe for the first time since 2010.

Peter Damesick at CBRE said buyers are attracted by the prospect of an improved economic outlook in Spain and Italy and growing confidence that the euro will survive. Returns in the commercial hubs of Madrid and Milan have become more attractive compared with other European cities after a slide in investment in both countries last year boosted yields. CBRE said yields for prime offices were 6.25 percent in Madrid in Q1, 6 percent in Milan, 4.9 percent in Frankfurt and 4.75 percent in London.

Mauro Montagner at Allianz Real Estate said many international investors are coming back, or coming into the market for the first time, realizing they are no longer like trying to catch a falling knife. Montagner said the market is more dynamic than it appears, and is competing with 8 other investors for an Italian property that probably would not have attracted any interest a year ago.

Magali Marton at DTZ said investment in Spain and Italy fell in 2012 to the lowest level since at least 2001, but will begin to recover this year and return to pre-crisis levels as early as 2014. Marton said Italy’s appeal lies in robust consumer spending and increased political stability as the political class demonstrated its capacity to manage the country and reduce public debt, and says Italy’s real estate market is more promising than Spain’s because of Italy’s strong industrial sector and lack of the construction boom that burdens Spain with an oversupply of buildings. 

The European Commission predicts Spain will grow 0.9 percent and Italy will grow 0.7 percent in 2014.

Spanish property owners face financial and regulatory pressure to sell after holding assets for years to avoid realizing losses.

The IMF said house prices in Spain are still falling sharply and further correction is likely.

Paul Danks at NAI Global said it is a very good time to expand into these markets as the majority of the big-name investors have always been there, but clearly inactive over the last few years.

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