US property investors are increasingly looking to invest in foreign markets, particularly the UK, according to a report by mutual fund analysts Lipper.
Approximately $2.6 billion of American money has been invested in European office blocks, hotels and other commercial properties abroad over the first three months of 2013, its highest rate in 6 years ($5.3 billion seen during Q1 2007).
This figure builds upon the strong growth seen over 2012, which saw total US investment in European commercial property at $38.71 billion for the year, a rise of $6 billion from the previous year. Timothy Walsh, chief investment officer for New Jersey’s public pension funds, said: "The big plus is diversification of your portfolio, number one. Number two, we actually think there’s better returns going forward.”
Indeed, the suggestion from analysts is that both high returns and large stock supplies are the reason for the surge in European investment from the US. Additionally this may be a long term trend, as the news comes shortly after as a study by global property service firm, DTZ revealed that commercial property in Europe has reached its best value in over ten years.
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The DTZ fair value index grades the ‘attractiveness’ of European commercial property ever three months, each country being given a score out of 100. In the final quarter of 2012, the European average rose from 62 to 78: the highest score since September 2003.
The Baltics, the Netherlands, Denmark, Belgium, Norway and Finland each recorded a perfect 100, closely followed by the UK, Ireland and Germany, each with a score of 91. Germany saw the biggest improvement of all counties included in the study, rising by 18 points from a score of 73 in 2011.
Italy and France followed with a considerably lower score of 72. Unsurprisingly, the worst faring country was Spain with a score of 17. The acute economic problems facing the country have hit the Spanish commercial property sector hard. Dozens of developers have collapsed, leaving new builds half-completed, and the market is flooded with property that analysts consider grossly overpriced.
Additionally, each country is given a ranking of ‘hot ‘warm’ or ‘cold’ – 94 out of the 105 markets covered by the report were judged either ‘hot’ or ‘warm’. The UK fared particularly well in this section, with 17 of 20 markets classified as ‘hot’.
Magali Marton, DTZ’s head of Continental European, Middle Eastern and African Research, said: "The most significant factor behind this change has been the more positive outlook for the Eurozone, which has pushed down bond yields and required returns as the risk of break up has receded. The upshot is that property looks better value in comparison to bonds."