Munich ‘more attractive’ than London

Munich has been named the top location in European for real estate investment by LaSalle Investment Management.
 
Germany’s third largest city overtakes London and Paris to head the league table of cities where real estate investment is likely to be strongest over the medium term.

Chicago-based LaSalle says in its annual E-REGI index Munich has strong levels of wealth, a highly diversified local business structure, consisting of a mix of strong global players and a growing SME sector from various industries. This, it says, protects the local economy from the full impact of the global financial crisis.

The index also says the German city offers particularly favourable business conditions, which are complemented by extensive R&D activities. In combination, these factors result in comparatively strong economic and employment growth forecasts despite the current slowdown.

The firm puts Munich above London and Paris in the pecking order, despite anecdotal evidence from private equity real estate firms that London is attracting the most interest.

While London’s size and wealth have kept it in the top ten, weak GDP and employment growth expectations have weighed heavily against the UK capital in the latest Index, says LaSalle.

Charles Maudsley, LaSalle Investment Management’s co-head of Europe, said: “Notwithstanding its decline in the rankings London remains a very attractive place for property investment because yields have expanded well beyond fair value even allowing for the weak demand outlook.” He added more caution should be exercised outside London and its hinterland.

LaSalle compiled E-REGI by ranking the top 98 European cities using a combination of economic growth factors, the overall level of wealth, and the relative attractiveness of the local business market. As a result of the financial and economic turmoil, there are significant changes to the top of the ranking in 2009, to the benefit of wealthy cities and at the expense of locations whose ranking used to be driven by strong economic growth prospects.

Overall, it placed Munich in top position, followed by Paris, Stockholm, Oslo, Luxembourg, Moscow, Helsinki, London, Stuttgart and Gothenburg.

LaSalle said Paris was only marginally behind Munich, as in previous years. This was achieved partly on the back of sustained growth prospects, mainly due to high wealth levels. As a result of the centralised political system, Paris is a major hub of administrative, economic and financial activity in France, it pointed out. It also serves as an important transport and logistics centre in France. However, while the local economy seems to be more resilient to the downturn than other major European locations, the downside of Paris’s role as the main business hub in France is greater exposure to variations in office employment.

Sweden’s position reflected a recent period of strong growth and its comparatively high levels of wealth.

Moscow premiered in this year’s analysis and immediately secured a place in the top-10, said LaSalle, overtaking last year’s top-ranked city, London, in the process. Moscow’s high debut ranking was primarily driven by its size, its importance to the Russian economy as a whole and recent evidence of its ability to record exceptional GDP growth. Counterbalancing these factors are its wealth and business environment scores, which detracted from the city’s overall score.

Simon Marrison, LaSalle Investment Management’s co-Head Europe added: “Recent figures indicate that European commercial real estate investment volumes are stabilising and we expect to see the cities we have identified in our 2009 index to be among the first to benefit from an increase in demand.”

He added: “Paris stands out as the market where the correction has been most pronounced and with the findings in this report we believe that with careful stock selection the market will deliver strong returns. We currently see value in well leased well located stock outside of the central business district, particularly on larger lot sizes where prices have moved most. Our teams in Munich are also seeing attractive opportunities although there are less forced sellers there.”