‘Only in it for the money’

Returns are the number one motivation for property investors, writes Roxane McMeeken

As the Frankfurt commercial property market collapses, investors in Continental Europe are getting increasingly excited about UK real estate. And it is the Germans themselves that are the most interested in British property, particularly “more conservative minded German open-ended funds”, according to Robin Goodchild, European director at LaSalle Investment Management. In terms of deal flow, LaSalle estimates that the UK attracted a total of 504 foreign-based investments from 1988 to 2000, while its closest competitor, France, is lagging behind with 307 deals. Next in line is the Netherlands, with 249 and Germany, with 125. But Mr Goodchild said while investors in UK property claim it’s all about diversification, in reality they are motivated purely by returns. LaSalle investigated the rationales of these investors in a recent report. “Although investors often refer to the diversification benefits of international investing, apparently they are not pursuing this path,” read the report. “Investors are pursuing other strategies while simply paying lip service to diversification.” According to LaSalle, investors are only in it for the money, with “the topography of yields” playing the key role. This isn’t a bad thing, argues the report, since “within the European context, despite the gradual convergence of property yields, opportunities to arbitrage yield differentials will continue to emerge, just as they do in global bond markets.” But LaSalle warns that investors need to determine whether yield differentials in various countries offer suitable compensation for the risk associated with them. Nonetheless, it concludes, “investment flows correspond to yields”.