European Investors Warned off US Market

LONDON-Foreign investors should be cautious of the US real estate market, Peter Hobbs, global head of research at Deutsche Bank Real Estate told the European Property Investment Conference. Hobbs said that record levels of foreign investment in 2004, the fall in yields, a flattening of the price trend means that European investors should be cautious. He added that US real estate looks expensive now particularly in the context of a depreciating dollar and investment taxes. "Now isn't the time to be putting large slugs of money into the US market," he said.

While UK players have cooled in their US targets—by some $20 billion ion the past year--Hobbs reported that other European investors poured $12 billion into the US. This was up from $8 billion in 2003. The bulk of that came from big German property funds, closely followed by Australian investors.

But Hobbs pointed out that the coming wariness isn't reflected in the investments European buyers may have already made. The long-term economic strength of the US, combined with its growing population and dominance of the global real estate market (it represents 40% of the total value of invested building assets worldwide, he reported) means that US holdings should have a large place in the portfolio of any serious international property investor.

What's more, the current hesitation shouldn't be too long or too deep, and prospects should be better after 18 months or two years. "Now is the time to be looking at options for future investing in the market," he stated.

Continued US job growth is expected, something that clearly bodes well for the office markets. If there is a longstanding cautionary note, it comes in retail, Hobbs said. He believes that the sector's recent period of aggressive investment-pricing as well as its current consolidation wave are hurting its outlook for incoming investors.