What factors do institutional investors consider when differentiating between European primary and secondary property? According to the FT Global Property Insight the market can be split between a few leading business locations and what is left.
Put simply commercial property in London, Paris and Frankfurt is considered prime and everything else is secondary at best. The publication concedes that this is a ‘crude demarcation’ but one that is, nevertheless, increasingly used by international investors.
This argument is supported by figures showing that, in the fourth quarter of 2012, around 72 per cent of international capital invested in commercial property went to the UK, France and Germany while only 3 per cent went into the next largest economies, Italy and Spain.
This illustrates a growing gap between what are considered to be primary and secondary locations. With institutions reluctant to invest outside these safe havens the only deals taking place are between local players based on local relationships. Furthermore, as the market enters the recovery stage, the impact will be slower to reach these markets.
Olaf Schmidt, of DLA Piper, said; “Institutional money will not be interested in such assets and banks will refrain from financing them.
“The market for secondary and tertiary assets will be the last to return to normal trading, most likely not before the end of the economic crisis in Europe.”
With an abundance of capital focused on prime assets in prime locations, and an institutional aversion to risk, this gap between primary and secondary property is likely to widen, says Matt Richards of Jones Lang LaSalle.
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