Price bubbles also imminent for Real Estate
Although the property sector won’t escape the euro crisis unscathed, investors are still keen on bricks and mortar as a safe option. International capital is flowing into safe markets like Germany. But price bubbles are looming.
Allianz Real Estate | Munich, 10/25/2011
Mr. Piani, you've just attended Expo Real – Europe's biggest property fair. What can you say about the state of the real estate sector? Has the upswing ground to a halt?
Olivier Piani: On the contrary. Property is much in demand as an investment item. The investment markets are flourishing, such as in Germany, which is viewed as a safe haven for international capital. Consequently, we're seeing price rises for core assets – property in prime city locations which is let to tenants with high creditworthiness. However, too little attention is being paid to the situation of office and retail tenants. They're exposed to higher macroeconomic risks, which is why they frequently behave with some caution when it comes to, say, leasing new premises and rent levels. We're continuing Allianz's expansion strategy in property investment by carefully taking into account these altered circumstances and the resulting risks.
How will the euro crisis affect the property sector?
OP: The crisis besetting the euro is affecting the whole economy – and the property sector won't escape unscathed. One tricky factor is that changes to the broader economy only start affecting property investments at a much later date. This means that the sector might be making mistakes today which only become apparent the day after tomorrow.
A crisis for the property sector could also be triggered by a crisis among tenants. That's why we need to be especially attentive in this area and observe developments closely. Then again, the number of safe havens in the world has also dwindled. The German property market is currently viewed as one of them. Accordingly, price bubbles will occur, although Allianz will certainly have nothing to do with their emergence.
The debtor states in southern Europe are struggling to balance their budgets. What does that mean for the real estate sector?
OP: The term 'debtor states' is emotive and too broad. It fails to reflect the different scale of problems. Apart from the widely debated risks, the currently highly volatile situation also harbours great opportunities. For example, the supply of land for newbuild projects is declining while purchase prices are falling, making investments more attractive again. Nevertheless, it'll still be a few years before the regional property markets and companies reach calmer waters.
The opportunities arising are only limited by investors' appetite for risk. Of course, Allianz's risk appetite is somewhere at the lower end of the scale since we set great store by lasting, safe investments. Even so, we're observing these markets very closely and will use the medium and long term opportunities which the present volatility offers us.
What are the future priorities of your investment?
OP: During the past three years, we have refocused ourselves with the Allianz Real Estate Group and are able to diversify our property portfolio throughout the world in terms of countries and areas, types, and also direct and indirect investments. Our goal is to substantially expand Allianz's real estate volume, albeit within a reasonable framework and not at any price. In doubt, we can even refrain from new investments for a period if required by the market situation. However, our big advantage is our international alignment. In connection with our diversification, we will always be able to leverage a wide range of market developments and opportunities and carry out safe and attractive investments all over the world.
