Europe Focus
In a global context, Europe (covering 31 countries) is characterised by relatively high levels of market transparency that combine to achieve the best overall transparency score, as well as the best scores on each of the five sub-indices. The region’s particular strengths are in the transparency of the legal and regulatory environment and governance of listed vehicles.
Europe also scores well in the transparency of the transaction process, reflecting the continued high levels of cross-border business in the region as well as the well-established presence of many multinational real estate advisors, who have helped to ensure consistent professional standards across the region, often regardless of local practices. However, progress on the transaction process has slowed in 2010, particularly in terms of the transparency of bidding and negotiating processes and valuation practices. In some European markets, the drop in transaction volumes and lack of comparables has caused problems with market-based valuations.
The European region has continued to make good progress on performance measurement and market fundamentals. Half of the European markets covered by GRETI 2010 now have reliable real estate performance indices based on hard data, while indices covering listed real estate securities and unlisted private real estate continue to deepen across the region. Since 2008, for instance, IPD has launched new indices for Poland and for specialist areas such as healthcare, as well as a Pan-European pooled fund index. It has also increased the frequency with which it produces indices for Italy, France and Norway. Furthermore, INREV, the European Association for Investors in Non-listed Real Estate Vehicles6, which has established industry guidelines, has reported an improvement in annual report standards7.
Market fundamentals data in Europe is at its most comprehensive for the office sector, but it is in the tracking of the region’s retail and industrial markets where significant progress has been made over the past two years. Data availability for those sectors that are less targeted by institutional investors, such as residential and hotels, are still in need of improvement.
With regards to transparency of real estate debt markets, across much of Europe there is still a lack of clarity on the size of the total outstanding CRE debt. The availability of information on CRE debt is generally low, although this is more of an issue for some markets than others. Ireland has been lauded for its transparency in dealing with the debt crisis; its government has been forced to take significant and aggressive steps to address its real estate debt issues, with the creation of the National Asset Management Agency (NAMA). Sweden also scores well on debt transparency, where following the crisis of its banking system in the 1990s, controls on lending have been tight and the government systematically tracks lending to property. In the United Kingdom, the Bank of England publishes figures on the total outstanding debt secured against commercial property on a quarterly basis, and there is a well-established survey of real estate lenders that is carried out by De Montfort University.
In overall terms, the United Kingdom retains its position as Europe’s most transparent market. With its deep and liquid real estate markets, it has traditionally provided the transparency benchmark against which other European markets are compared. However, this position is being challenged, as other European markets move up the transparency rank. Notably, Sweden has moved into second place in Europe, reflecting further improvements in market data and the impact of legislation limiting the ability to reduce taxes payable through the use of special purpose vehicles. France has also continued to make progress, but it is in Germany where the greatest advance has been made, a result of improved market data beyond the office sector and its developing REIT market. Ireland, Denmark and Belgium have moved into the high transparency level for the first time in 2010, though in Belgium, high transfer duties which lead to share sales and increase the complexity of trading, continue to compromise transparency.
Across Europe, there remain significant differences between markets, although the historic differences between Western Europe and the CEE region are becoming increasingly blurred and certainly less relevant to real estate investors and corporate occupiers. The three most advanced CEE markets—Poland, the Czech Republic and Hungary—now have transparency levels comparable or better than the more opaque markets in Western Europe, such as Italy, which have struggled to improve transparency. Poland, the Czech Republic, Hungary, Slovakia and Romania have all witnessed improvement in transparency over the past couple of surveys. Both the public and private sectors have taken significant steps into bringing these markets in line with other EU countries, and at the same time, foreign investor participation continues to drive convergence with international standards.
Not all CEE markets are making progress however. Bulgaria continues to struggle to maintain transparency levels, and many transparency issues remain to be effectively addressed. Croatia also has low transparency, which is unlikely to improve significantly until the country enters the European Union. Further east in Russia and the Ukraine, transparency improvements have stalled in 2010, a reflection of the severity of the real estate downturn in both markets, and a sharp contrast to the strong improvements registered in 2008. In Russia, the downturn has put legislative and regulatory changes and market improvements on hold, with all players focused on their survival rather than advancement.
In contrast, Turkey has made up lost ground over the past two years and registered the strongest improvement in transparency of any market globally. Its poor score back in 2008 partly reflected the negative perceptions among investors following a Constitutional Court ruling which temporarily halted foreign real estate investment. This has since been reversed by new legislation. Turkey, within the framework of the EU accession process, has also been working hard to align its legal and regulatory systems with developed countries. A number of private initiatives to improve data in the real estate sector have also boosted transparency levels.
Paradoxically, two European markets which have recently faced significant economic difficulties—Portugal and Greece—have shown good progress in real estate transparency. In Portugal, the improvement reflects a growing professionalism and greater adherence by the real estate industry to legal and regulatory frameworks. Both the quality and access to real estate data has also improved in Portugal with the growing role of organisations such as IPD and the Lisbon Prime Index. Greece has made advances in many categories since 2008, particularly in terms of the depth and quality of market information. Planning is the only exception, whereby a widely-publicised case that involved a large shopping centre development continues to cast a shadow over the reliability and consistency of the country’s planning processes.