Despite ongoing uncertainty and turmoil in 2012, prospects for the European economy in 2013 and beyond are less dark than expected. A strong recovery is certainly not for tomorrow, but the worst is now behind us.
European invested stock continued to grow in 2012, albeit at a modest 3% in Euro terms. The three core markets all grew, whilst CEE growth slowed. But, echoing macro trends, the periphery recorded another year of decline.
Deleveraging continued across Europe in 2012, with equity growth close to 5% and debt at 1%. Non-bank lending and corporate bond issuance expanded further, while traditionally dominant bank lending remained flat.
Property market sentiment remains mixed, as the macro outlook varies across Europe. Lenders are more cautious than investors in our annual survey. Highly selective lenders do expect growth in their loan books, but no better lending conditions. Investors feel buying opportunities have returned to normal and debt availability has improved. In our view, sentiment has been slow to improve due to the debt-related workout, especially in Europe. But, things are not as bad as they seem, considering:
European investment volumes were up 6% in 2012. Cross-border investment activity has increased with a wide range of capital sources – from US to Asia Pacific – focused on investing in Europe.
Most of the markets are now fairly priced with our Fair Value Index at its highest score since 2003. Property markets have never been so attractive, especially compared to the historically low bond yields.
The total liquidity ratio remains still below its 10-year average in Europe. However, based on inter-regional liquidity, Europe is the most attractive region for new international investors. Apart from stock size, investors should consider these liquidity ratios. This should trigger more interest in a few alternative markets across Europe such as Sweden or Poland.