Into the unknown

LaSalle Investment Management is launching European Ventures Fund III to acquire up to €5 billion ($7.9 billion) of real estate in the belief that the overall economic outlook is positive for Continental Europe.

Despite fears among investors over weakening occupational markets and general uncertainty, the firm said stable interest rates and an improving labor market, which have resulted in unemployment being at the lowest rate for 25 years across the Eurozone, should help.

It said the European office sector was benefiting from improving vacancy rates and low supply levels for grade A space, while positive rental growth was forecasted over the next three years. It expected solid tenant demand in the best shopping centres and retail parks across Continental Europe as major retailers look to expand their networks. Likewise, the logistics market is expected to witness strong demand across Western, Central and Eastern Europe. Growth rates for Central and Eastern European hotels, particularly in the capital cities, will remain strong, driven by growing demand from business travellers, it argued.

Simon Marrison, co-head of Europe, said in a statement: “We believe risk-pricing has returned to the market and that the strong take-up of top quality properties in Continental Europe will continue to drive good levels of rental growth. In addition to developing high quality office space and repositioning existing poorer stock, we see considerable demand for sustainable buildings. We also see growing demand in the hospitality sector, particularly across Central and Eastern Europe.”

Not everyone would argue, however, that the prognosis for office rents in Europe is good. In a cautionary report by Cushman & Wakefield last month, called Banking Letting Activity Update, the property services firm said: “The banking sector is a major occupier of office space in the key cities of Europe, so obviously any downturn in its activity in the leasing market would impact the overall letting activity in Europe.”

Thousands of banking jobs have been lost already this year in London alone, and many more are due under plans outlined by banks, such as Royal Bank of Scotland. This means that the argument put forward by many property investors six months ago that the credit crunch had not impacted on the fundamentals of real estate look increasingly hollow.

Though reports suggest London could be the most vulnerable to rising vacancy rates owing to widespread job losses in the banking sector, LaSalle has been buoyed by what it said in March was the largest letting in the financial centre so far this year. The firm said it pre-let around 72,000 square feet at 65 Crutched Friars to international law firm Holman Fenwick and Willan. LaSalle is refurbishing the building with New Century Reversions.