The fund manager and commercial property analyst has said European economies are expected to show continued improvement in 2007, leading to opportunities within the commercial property sector.
As commentators downgrade investment returns from the over-ripe UK market, Seven Dials highlights the ‘Euro-factors’ underpinning this fast growing asset class.
Seven Dials chief executive Brett Robinson said: “While Euro-zone economies have lagged the UK’s domestic growth, all the signs are that Europe has far more upside growth potential than the UK.
“Supportive conditions for domestic demand remain in European economies and they are generally less reliant on US trade than they have been in the past, which will leave their territories better shielded from downside risk than the UK; a further bonus for European investors is the current strength of the labour market in Europe, and the potential for further productivity gains.”
But Robinson also warned that, in order to generate positive returns in European property above those on offer in the UK, investors must still be selective in terms of markets and sectors, as well as being mindful of careful stock selection.
He said: “At a sector level we favour retail and industrial over the office sector – they are better placed to pick up from Euro-zone domestic demand, and aren’t as keenly priced.
“These sectors also offer the best diversification benefits. Key office markets are influenced by global financial markets and tend to be the most liquid and transparent, and thus have attracted the brunt of the capital flows going into European property.”
Seven Dials is particularly warm on the Nordic region and the Netherlands, where it anticipates robust domestically-driven growth through 2007 and beyond.
“We also believe that these markets offer attractive pricing on a relative basis and thus good prospective total returns,” said Robinson.
“Interesting additional economic plays include Ireland and Spain, where high inflation is anticipated and thus high nominal returns, which look attractive when compared against nominal bond yields in the Euro-zone.
“Stock selection will continue to be the key driver for out-performance in European property investment. Commercial property is less landlord-friendly on the continent than it is in the UK and thus requires greater asset management.
“Selecting the right teams to invest with is thus crucial and we place great importance on the availability of local ‘internal’ expertise in the sourcing and managing of assets.
“UK investors have been broadly pleased, as the sector was the best UK investment performer over the past few years. But with lower forecasts for UK returns for 2007 and beyond, we would suggest a wider commercial property investment horizon for this year,” said Robinson.
