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EUROPEAN REAL ESTATE INDUSTRY ‘HUNKERING DOWN’ FOR 2009

Survey Reveals Industry Is Set to Face a ‘Torrid Time’ In The Year Ahead As Sentiment Falls Across Europe Prague’s real estate market remains relatively stable with strong “hold” recommendation

ČESKY (EVROPSKÝ TRH S NEMOVITOSTMI LETOS ZPOMALÍ)

Central European markets held their own, despite a generally gloomy outlook for European real estate market in 2009, according to the report Emerging Trends in Real Estate® Europe, 2009. The report, published by the Urban Land Institute (ULI) and PricewaterhouseCoopers, covers 27 markets in countries throughout Europe and is based on surveys and interviews with nearly 500 of the industry’s leading authorities.

The survey shows a strong “hold” recommendation for all sectors in the Prague market. Despite this being a substantial shift from a strong “buy” recommendation in 2008, the global financial crisis and the resulting lack of debt financing have taken less of a toll here than in some other markets. The city continues to have reasonable supply/demand equilibrium, and with developers holding back on a lot of projects, at least this offers some grounds for hope for an eventual recovery.

Glen Lonie, Real Estate Partner of PricewaterhouseCoopers Czech Republic, said:

“The ratings for Prague appear to show it to be a relatively stable location for real estate activity within an overall difficult landscape. Declining investment volumes and restricted finance reflect the overall position in Europe. When the market recovers, a correction in yield levels should ensure that Prague is seen as good value for investors and developers.”

From a Central and Eastern European perspective, Moscow and Istanbul remain popular for both investment and development, despite strong concerns on their risk profile. Warsaw has improved its position from 2008 with investment and development rankings of 13th and 7th in 2009 which reflect its relative size within the region. Budapest remains in the lower ranked markets.

Across Europe, investors, developers, bankers, and brokers all confirm that 2009 will be “a very difficult” year. Capital for real estate will continue to be in short supply in both equity and debt markets and there is real uncertainty as to when this trend will reverse. It is not yet clear whether it is holding off for pricing to improve or whether the reason is more fundamental. Indeed, the ratings for overall attractiveness, on a scale of one to nine, are the lowest ever recorded by Emerging Trends in Real Estate® Europe.

Overwhelmingly, respondents report that it is virtually impossible to get new debt and it will continue to be tough to obtain in 2009. As a result buyers are looking to alternative strategies to keep them in a deal, such as looking for seller financing or talking to the existing lender.

The report also reveals that the current real estate capital markets crisis could turn into an occupier crisis as Europe slides deeper into recession. Economic growth has continued to decline across Europe in 2008 and this trend will follow into 2009 as European economies continue to struggle in current market conditions. Even the fastest growing countries will face production declines through the year ahead and expectations are that it will feed through into tenant demand and a corresponding increase in vacancies with rents stalling or facing a correction.

John Forbes, Real Estate Leader in Europe, Middle East and Africa, PricewaterhouseCoopers, remarked:

“This is going to be a tough year for many investors. For those who bought at the top of the market it could be a struggle for survival, particularly if banks become more aggressive in dealing with covenant breaches. On the other hand for those with equity to invest, there will be opportunities as the banks start to take action. Although new debt will remain in very short supply, banks may have little alternative to remaining as lenders during the restructuring of defaulting borrowers.”

William Kistler, president of ULI Europe, the Middle East, Africa and India (ULI EMEAI) pointed out that the full impact of the financial crisis is just starting to permeate the economy across Europe, as consumer spending, business confidence and property values continue to decline. “Everything is being put on hold until we start seeing signs of a bottoming out,” Kistler said. However, despite the overall gloomy conditions, opportunities remain for those who have cash to invest, he noted. “With interest rates low, and the market generally not overdeveloped, there are bargains available for those who are in a position to buy.”

Investment and development prospects fell for all of the cities ranked in the report, with overall investment prospects dropping from a rating of 5.6 (modestly good) in 2008 to 4.7 (fair) in 2009. Development prospects fell even further, from 5.6 to 4.3 (modestly poor). Risk ratings have also worsened.

Munich has emerged as the lead real estate investment market in Europe moving up three places from its 2008 rank. The last place in the investment market rating is occupied by Dublin. Prague continues to place in the middle of the field – 15th for investment and 9th for development prospects. For city risks, Prague ranked 18th.

The retail sector has once again been awarded the top spot among property types for investment prospects, only just hanging on to the top spot with the hotel sector following closely behind. Economic development will determine just how rewarding these investments will be. Moscow is the most favored investment spot amongst the major European cities and nearly half of all respondents regard it as a ‘buy’. Munich, Warsaw, Hamburg and Istanbul also earn marshal investor support. Markets with the highest sell rating include Dublin, , Athens and Madrid and investors are urged to proceed with caution.