Equity slump in Europe

Though there is €50 billion of equity ready to be deployed in European real estate this year, the amount has fallen by three quarters from 2007, according to Jones Lang LaSalle.

More than €50 billion ($68.3 billion) of equity is targeting European real estate, according to research by global property services firm Jones Lang LaSalle. The cash pile is down from €200 billion targeting the region two years ago, according to a senior director at the firm.

In its European capital markets outlook paper ‘Time for Decisions’, Jones Lang LaSalle said the money would come from opportunity funds as well as other third party money managers, international wealth entities and some German open and closed ended funds.

Tony Horrell, head of European capital markets, told PERE that 20 percent of the equity ready for deployment is coming from opportunity funds, 20 percent from third party money managers, 20 percent from institutions, 20 percent from the German funds, 10 percent from international wealth entities, 5 percent from private investors and the remaining 5 percent from various other sources.

Horrell defined opportunity funds as those that have raised equity to invest in distressed opportunities. He also said that of the €200 billion targeted at European real estate investment in 2007, a proportion was deployed in 2008.

He said the ovrall equity figure had fallen because people were less inclined to put up equity because debt finance was not readily available to help finance investments. He also blamed a widespread negative sentiment towards real estate investing market. “When confidence is not there, people will not commit their equity,” he said.

“We have no doubt that operating conditions in 2009 will be the most challenging that many in the market have ever encountered, but for those able to look to the medium term and with access to capital we think 2009 will be the year when the market begins to clear and some opportunities will be too good to miss.”

In its research, Jones Lang LaSalle says values across the continent have fallen by about 40 per cent from their peak in the summer 2007 and this fall would continue in 2009. In the fourth quarter of last year JLL said yields came out by 200 basis points in some markets while in others, yields came out by no ore than 50 basis points.