Published on 19/09/2008

Over the rooftops of Brussels, the capital of Europe, the property market is stagnant - very little is moving. Nevertheless, Brussels has the good fortune to be cushioned by the powerful force of institutions of the European Union, NATO, etc, and the accompanying legions of lawyers, lobbyists, journalists et al, who have an ever increasing demand for space as the EU continues to grow.

However, out there in wider Europe the situation is very different. History tells us that continental Europe lags behind UK - both in the ups and downs.

Developing a strategy, by definition, is difficult in a volatile market. For the moment, strategy is based more on what one should not do as to what one should do. It is clear that some countries in continental Europe are going to be hit harder than others. Raising finance is difficult throughout with the credit crunch. High performers of the past, fuelled by the highly leveraged housing boom economies such as Ireland, Spain and Greece are expected to experience a greater slowdown in growth.

Domestic demand growth is likely to be constrained by worsening government budget deficits and relatively high levels of consumer debt. The smaller and less liquid markets can expect high volatility in pricing. However, this is partially cushioned due to economic growth and shortage of stock. The most attractive countries will be Germany, Italy, Benelux and France where volatility will be much less pronounced due to greater liquidity. Interest is increasing in the UK. Investors have been priced out of the market in the past, but interest has been renewed, aided by the fall in sterling.

Vacancy levels are relatively stable throughout, due to a slow-down in development or suspension of projects. Rents are rising in Milan, Frankfurt, Warsaw, Moscow, Vienna and Amsterdam and falling in Paris, Barcelona and London City where they are roughly at the levels of three years ago.

It is probably too early to expect many distressed sales on the market. However, by 2009 the situation may be different and there may be opportunities for the cash buyer, especially in the UK. In continental Europe, the market is more robust and given stronger economic growth in the emerging East European countries; they must be the ones to watch.

Therefore, in Europe cash must be king. The vulture funds are waiting for opportunities.
Christopher Thubron,
Brussels, Belgium
mailto:Christopher.Thubron@moorestephensbrussels.com