The Real Deal Miami

European property investors opt for stability over better yields

August 13, 2012 02:15PM

The European Central Bank in Frankfurt

Frightened by the debt crisis, European real estate investors are focusing on safe bets in financially stable cities, such as London, Paris and Berlin. But according to Reuters, in doing so, these investors are losing out on better deals in smaller cities. The best office spaces on the best blocks in London’s financial district yield approximately 5.5 percent in annual rent as a percentage of the property’s value and London’s luxury retail properties in prime locations often produce yields below 4 percent.

But property yields are significantly more rewarding in regions where investors have been scared away. And properties in these locations with long-term leases can be just as stable.

For example, Fidelity Worldwide Investments, which owns an office block in the small British city of Bournemouth, sees an 8.25 percent yield on the property without much risk, since it leased to a government agency for eight years. According to Matthew Richardson, Fidelity’s director of European real estate research, the property could lose 52 percent of its value and it would still prove a better return on investment than a government bond.  “You can’t assume all property outside the best areas is junk,” Richardson said. [Reuters]Christopher Cameron