American real estate developers and investors can find some similarities and some differences in comparing European property markets to those in the United States.
For instance, there's a strong market for office space in urban Switzerland. Prime rents rose 15% last year in Geneva, and the downtown demand for space in Zurich outdoes supply. However, new retail development is sparse outside the central cities of Switzerland.
In the United States, almost all cities have a glut of unleased office space, but retail development is pervasive in all cities and in most towns that have not become bypassed or "ghosted."
In France, where the Paris area--not surprisingly--is the most dominant market, the office market is active and rents have been rising. Like American cities, Paris has a booming market in suburban office parks if there is good public transportation and the office parks are well designed and landscaped. Retail parks, similar to our suburban warehouse businesses, are now appearing on the Parisian market.
An international property bulletin, prepared by Landauer Associates in New York City, states that the United Kingdom has the highest level of office rents (about $68.50 in American dollars a square foot). Pressure has been increasing for "out-of-town retail projects in Britain, posing a threat to traditional town-center shopping. Incidentally, Europe's largest mall-type center is the 2.3-million-square-foot Metro Centre, outside Newcastle on the Tyne River in England.
A capsule version of the Landauer international real estate review published recently in Urban Land magazine also noted that the demand for office space is strong in West Germany's main cities, where absorption is healthy except where supply has not kept pace with demand. High-tech companies are providing a vital market for production/warehouse/office space. U.S. developers can obviously envy West Germany's stable costs for land, construction and financing.
In Sweden, Landauer reported, many large discount stores have been converted into smaller, specialized retailing spaces. Sound familiar? That tack has been used successfully in the United States, recently by Federal Real Estate Investment Trust in converting a vacant discount store in Bethesda, a Washington suburb.
In Spain, it was reported that absorption of office space and rents has been growing in Madrid and Barcelona. Solid central sites are earmarked for redevelopment in Madrid.
Meanwhile, a growing number of shopping centers similar to those abounding in northern Europe are expected to be erected near major Spanish cities.
In Portugal, there appears to be a rejuvenation of the dormant Lisbon office market. But the retail market has been strong in top locations, and some new shopping malls have been built in Lisbon.
The demand for industrial space in Italy is strong for small spaces in the range of 10,000 to 16,000 square feet (with rentals around $3 a square foot), but there is a weak demand for large spaces. Retailing is strong in Rome and Milan and most of the Italian retailers tend to be owners of space rather than tenants.
American office building developers and investors can envy the Brussels office vacancy rate of only 2%, compared to 20% only 10 years ago. This major financial city has an "acute shortage of buildings providing units of 50,000 square feet or more."
Incidentally, the rate for office space in Belgium is only $13.75 a square foot. Nearby, in the Netherlands, the rate of office space absorption rose 50% last year, but the stock of available space remains high--in the 16-million-square-foot range.
Meanwhile, American real estate projects continue to attract foreign investors, including many from Europe. Why?
Washington realty veteran Justin Hinders commented that prospects for investments in European real estate apparently may not be as wide open to "new money" investors who are widely welcomed in America.