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News : EU Economy Last Updated: Jul 12, 2010 - 7:19:02 AM

European governments selling property assets to ease debt burdens; UK commercial development hit by dip in public sector activity
By Finfacts Team
Jul 12, 2010 - 6:02:37 AM

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European governments are selling property assets to ease public debt burdens, according to a new report.  Meanwhile, data published today shows that a fall in public sector activity pushed down UK commercial development in June.

A number of European governments, including the UK, Germany, France and Greece, are preparing to accelerate efforts to sell public property more actively and on a larger scale as a measure to raise funds. Government-owned property sales in Europe reached €840 million in 2009, and has totalled between 2% to 2.5% of all European public sales annually over the past four years. This figure could well increase this year, according to the new report by property consultants CB Richard Ellis (CBRE).

Marie Hunt, Director of Research at CBRE, Ireland said: “Although the Irish Government have yet to make any announcement regarding selling any of their property assets, several European governments are looking to secure real estate disposals on a large scale. The volume of these asset sales is likely to increase in the coming year or so, as governments look for ways to shore up public finances. The average deal size of last year’s government asset transactions was generally quite small, averaging €10 million. It is likely to be a similar story this year as buyers avoid larger buildings that carry vacancy risk, but we expect the practice to be more widespread.

“The market’s appetite for government-disposed buildings will vary depending on the reason for the sale and the type of asset. Investor demand is likely to be strongest for prime assets such as offices that governments will sell but continue to occupy, generating long government-backed income streams. Prospective buyers for these types of assets would include institutions such as local and overseas pension funds, insurance companies and German Open-ended Funds. Surplus buildings in poorer locations and with possible vacancy risk will attract less interest from buyers.”

The UK government has announced its intentions to sell around £35bn of public sector assets over the next 10 years, with properties expected to include student housing and infrastructure. In Germany, the government is continuing its long-standing commitment to public sector and residential sales at a more local level. Germany made up 42% of European public sector sales last year and its contribution to the European total has averaged 30% over the past four years. The target of BIMA (Bundesanstalt fur Immobilienaufgaben), the German company responsible for the disposal of state-owned properties, is to sell off around half of the €6.8bn portfolio of properties within the next five years. France, Italy and the Netherlands each accounted for 10% or more of all European public sector sales in 2009, such that in total, the four largest contributing countries accounted for nearly 80% of last year’s activity in the region.

Meanwhile, the Savills Total Commercial Development Activity Index, produced by Markit,  - -  which is a net balance monitoring the overall performance of the UK commercial property sector  - - posted -2.8% in June, down from +4.1% in May and the lowest for eleven months. The net balance on average in Q2 was +1.8%.

Commenting on the June survey, Michael Pillow, Head of Building Consultancy at Savills said:  "Public sector austerity measures are now firmly impacting on the development market, with development activity for public sector clients now in double-dip territory. Thankfully the slack is being taken up by continuing growth in the private sector."

UK commercial property Source: Markit

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