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Germany may be losing its lustre as the safe haven of Europe, but few alternative destinations can match its shine

What can the European real estate industry possibly have in common with the American film Groundhog Day?
That provocative question set the scene for the Outlook 2013 Investment Briefing held at the Opernturm tower
in the Frankfurt office of law firm Ashurst at end-November.

By the end of the keynote speech by Marcus Cieleback, head of research at Patrizia Immobilien, the answer was clear: the European real estate sector now finds itself in the same time loop in which actor Bill Murray found himself in his role as TV weatherman Phil Connors. With one important difference. While Groundhog Day is now recognised as a classic comedy, there is no light relief ahead for the European property industry - at least not in 2013. Overall, there are very few bright spots in Europe, he argued. ‘The Nordic countries are viewed as safe but each of the four has a different currency. Sweden and Norway are interesting but are investors brave enough to go in un-hedged? That’s the question we need to keep in mind: do we want to go into these countries hedged or not?’ The run on prime assets in key markets such as the UK and Germany has pushed yields down over the past couple of years, but the era of falling prime yields is coming to an end in London and parts of Germany, Cieleback predicted. ‘Yields have reached such levels that there’s not much potential to go down any further. The UK is liquid, but hedging is expensive and assets are starting to be priced out of the market. There’s not a lot of rental growth potential either... I think we will see more sideways movement in yields.’

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