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Economy Threatens Listed Real Estate in Europe

10/13/2011 | By Matthew Bechard

Growth is slow in the listed real estate market in Europe, according to Stephane Larsen, portfolio manager with Presima. He spoke with at the European Public Real Estate Association's annual conference in London in early September and said the general economic environment is the biggest threat to European investors.

However, he added that Presima won't avoid any particular markets because they are negative on that market. Instead, he said it will be reflected in the pricing. For example, Larsen added that the company is willing to go into markets that will have some Spanish exposure if it believes the price is right.

"For us, it all comes down to pricing, as a bottom's up investor that's the secret to our success," he said.

One area of disappointment over the past five or six years has been the REIT structure in Europe, according to Larsen. He added that while it's too early to determine how the Italian REIT experience will play out, he said the experiences in the United Kingdom and German markets have not been well received.

"I think we had a general disappointment as to the expansion we've actually seen," said Larsen. "I think we can blame partly investors and partly the companies for that. Companies aren't exactly delivering the vehicles that investors want. Investors are looking for high sustainable yield and the companies I believe are still looking at it from a bit of a growth angle and not the income angle," he said.

He said that growth will remain stagnant until companies present the right vehicles and "investors are willing to put the money on the table."

Despite the challenges, he has observed several areas of value lately. Larsen said one of those pockets of value comes in the form of companies that are currently beating low expectations, such as those in Germany. He said Germany is witnessing strong growth right now, despite earlier predictions.

"I think that's an interesting environment for companies with low growth but might beat expectations," he said.

Additionally, Larsen predicted that sectors such as the multi-housing residential space in Germany, may see growth, as well as the student housing market in London.