by John Gellatly and Stephen Mallen
This is the first of a series of articles by members of the Society of Property Researchers. Each article gives some examples of the successful use of property research. Success depends on asking the right questions, gathering the right information, interpreting it intelligently and then acting on the findings.
Introducing the series, Rachel Unsworth, chairman of the Society of Property Researchers and research director of Cluttons, explains that the point of property research is to gain a competitive edge by finding ways in which to reduce risk and maximise returns. Researchers advise on location, sector, quality, quantity and timing by assessing future supply and demand conditions. But the benefits of property research are not yet fully appreciated by all property decision-makers.
According to George Orwell “Information is power” and nowhere is this truism more poignant than in the European property markets. The lack of information on, and comprehension of, the workings of the European property markets is stunting the Continental ambitions of investors, developers and occupiers alike. It is against this background that the value of property research is being clearly proven.
A number of factors are leading more and more property market players to assess and evaluate their European property strategies. Recession in the UK markets, the increasing internationalisation of property investment, the prospect of European financial liberalisation in 1993 and — until recent events caused a reappraisal — the opening up of eastern Europe are presenting a range of exciting opportunities.
However, as investors, developers and occupiers look to assess these opportunities in more detail, they all come up against the problem of the paucity of sound, comparable market data both within and between the individual European markets on which they can base decisions with confidence.
The UK property market may have its problems but, reflecting its greater sophistication and maturity, it is a cornucopia of market data and research material into all sectors when compared with its European counterparts. Within the UK there are, for example, some six different quarterly reports produced by agents on the City office market alone; there is a wide range of databases, such as APR and Focus, where individual property details can be accessed, and even aggregate performance results as provided by the Investment Property Databank.
The lack of property market data and research is not endemic to the whole of the rest of continental Europe, however, and some centres — most notably major cities such as Paris and, increasingly, Berlin — are the subject of a wide range of research studies but these are the exception rather than the rule. The problem for most operators in trying to assess and access opportunities in the various European markets is not that the research data is not available — it is just that it is not so available as in the UK and the operators do not possess the research skills and experience to know where to obtain it.
Thus, for example, while an increasing amount of research on major German centres such as Berlin, Frankfurt, Dusseldorf, Munich and Hamburg is being produced, other centres such as Hanover, where there is a minimal UK agency representation, receive very little attention. Local operators are obviously well aware of market conditions and opportunities, but the city’s attractions as a transport and distribution centre, lying athwart the main east-west European transport axis, would have a much wider appeal were the information more generally available.
Similarly, the Spanish cities outside Madrid and Barcelona are the subject of very little research. Should an investor wish to consider the out-of-town office market in Valencia, Bilbao or Seville he would have to commission specific research studies.
The requirement for detailed property research into Europe has been clearly voiced by all the speakers at the in-house seminars organised by Knight Frank & Rutley. Throughout these seminars three sets of problems have been consistently identified:
(1) Language
The most immediate problem which faces organisations looking to Europe is the language barrier. Although this may be partially overcome by individuals having a smattering or colloquial understanding of a particular language, this is unlikely to be sufficiently developed to deal with the property jargon.
Furthermore, even if individuals can speak a European language it is generally only a single language and this tends to constrain them in assessing the full range of European markets.
Successful research is also dependent on a specialist appreciation of the terminology used in each of the national markets. Thus, in Italy it is important that the terms “Tascap” and “ILOR”, which refer to the local tax levies imposta comunale per l’esercizio di imperse e di arte e professioni and imposta locale sui redditi, are fully understood and appreciated by potential occupiers and investors.
(2) Market conventions
The language problems are compounded by the different legal and operational frameworks of the property markets in different countries. Therefore, in assessing the rental growth rates between centres it is important to take account of conventions by which rents are adjusted so that they can be clearly compared like-for-like.
Table 1 sets out standard length of lease, frequency and basis of rent reviews, with the frequency of rental payments. These are just some of the factors which property researchers must take into account when advising occupiers and investors of the attractions, or otherwise, of different centres.
(3) Lack of data
As already noted, the major problem in assessing the European markets is the lack of “hard” market data, reflecting the comparative immaturity and lack of transparency of these markets. Thus, in many instances, transactions are not reported and the only way in which details emerge is through contact with local market players.
It is this problem which property researchers have to address most diligently. To do so requires a thorough understanding of how the respective markets work, who the major players and information organisations are and how these respective sources can be accessed. It is by obtaining this type of data that the real worth and skills of property research are apparent.
Surveying practices with networks of European offices are well able to provide comprehensive statistics and are increasingly publishing market data regularly, such as the comparable rental growth figures in Table 2.
In response to these problems, organisations have had to turn to the skills of the property researcher to assist them in providing vital intelligence. Reflecting the commercial value of the research material provided, the vast majority of such work has been in the form of confidential client consultancy studies, ranging from broad sector overviews spanning the entire Continent to very detailed studies of the demand and supply position in individual centres.
However, the increasing level of interest in European markets is leading to the provision of a more extensive range of published research documents as different organisations vie to display the depth of knowledge gleaned through their consultancy studies and office networks.
Because the UK research sector is far more advanced than in any other European country, UK-based research professionals are increasingly called upon to advise on Europe-wide property questions. Inward investors, notably the Scandinavians, Japanese and Americans, are continually surprised not only by the relative paucity of data and information on the Continent but also by the lack of research expertise for the collation and analysis of such data relative to the UK. European property researchers do exist, but they invariably work for British surveyors and, as such, typically represent a logical extension of a core London-based operation.
By way of a case study, we are currently acting on a business park development opportunity in northern France for a French local authority. The original connection for this instruction was made through our network of French agency and research operations. The clients rapidly formed the view that the research, marketing and subsequent disposal of this opportunity was best handled from London, rather than Paris, owing to the site’s international significance and the need to implement a comprehensive research programme examining the scheme’s potential, which could viably be handled only from a London base.
The research into this project has so far comprised the following principal elements:
(1) A detailed investigation of the commercial development sector within the relevant French region with regard to basic supply-and-demand indicators, sectoral spread and performance indices. This has enabled us to advise on the optimum sectoral content of the proposed project, the likely source of owner-occupiers and/or joint-venture development partners and principal funding sources. It has allowed us to set in place a masterplan profiling the progress of the scheme to correspond with projected shortfalls in supply within the market.
(2) We have also undertaken an in-depth analysis of the local and regional socio-economic environment to assess the likely future position of this development within the local economy and its place within local authority employment generation initiatives and inward investment programmes. This has entailed a close examination of such factors as: the transport infrastructure, the skills of the catchment population, existing strengths within the corporate commercial composition of the area, average wage levels, future housing provision and the availability and quality of local services and amenities.
This part of the research programme has thus simultaneously examined the effect of the proposed development on the local economy and the likely influence that this will have on local authority planning and development policy, together with the collation of extensive data and information which can be turned to advantage when the scheme is marketed to potential development partners and/or end-users.
(3) The last principal element of the research executed to date has entailed an investigation into the likely target market for the finished product. Here we have surveyed and analysed the European premises requirements of 1,000 of Europe’s larger employers to ascertain the potential corporate interest in this scheme in relation to corporate relocation, expansion or restructuring programmes. This will ensure that the scheme provides developed accommodation appropriate for its target market in later years. It has also enabled us to examine such issues as the target tenant mix for the scheme, the appropriate level of building specification and the level to which on-site amenities and services should be provided to attract occupiers.
In summary, it is only UK-based research practices which are currently able to offer this type of integrated and comprehensive research. The fact that a French local authority is prepared to come to London for this service is testimony to both the quality of the research on offer and its relative scarcity.
Until recently European property research had primarily been carried out by small, disparate groups acting on behalf of the limited number of clients active in the markets. However, as the opportunities in these markets became more apparent and as the number of players has increased so has the realisation that there is a dearth of data. This, in turn, has led to the requirement, almost as a prerequisite, for detailed research to assist in the definition of property strategies built on a thorough knowledge of the market.
To assist this process the Society of Property Researchers (SPR) is playing an active role through the creation of its subsidiary network — the European Property Research Network (EPRN). This body now comprises some 50 property researchers drawn from academic and commercial organisations throughout the UK and Europe who regularly meet to discuss and exchange information and views.
Property research is responding to the challenges and requirements of its clients — the developers, funders and occupiers of the product — but there is still a long way to go before the general level of material on the Continent matches that available in the UK.
