LaSalle’s 2010 E-REGI Index reveals sharp regional disparities in aftermath of global financial crisis

London has returned to take its place as the most attractive European city for real estate investment, according to a new report from one of the world’s leading global real estate investment managers.  In its 12^th annual European Regional Economic Growth Index (“E-REGI”), LaSalle Investment Management (“LaSalle”) reveals that medium term demand for commercial real estate is likely to be stronger in the UK capital than in any other European city.

Having dropped from 1^st (2008) to 8^th place last year (2009), London has now jumped back up and ahead of last year’s winner, Munich.  The financial crisis had a serious impact on London, Europe’s largest financial centre, resulting in dramatically lower GDP and growth expectations but the city’s dynamic and flexible economy has bounced back strongly, highlighting its role as Europe’s leading business hub and pre-eminent global financial centre. 

LaSalle says that the 2012 Olympics will definitely provide a boost to investment in London, specifically in the Lower Lea Valley.  The Games will also provide numerous job opportunities and will aid the hospitality industry.  Likewise, the development of Cross Rail will improve east-west communications across the UK capital.  However, LaSalle warns that the mounting national debt burden and risk factors stemming from the over-exposure of banks and highly indebted households present the coalition government with a major challenge in fostering economic growth.

The 2010 E-REGI report continues to favour wealthy locations such as the Swiss and Nordic cities and those European city regions that benefit from strong fundamentals, allowing them to outperform in a low-growth environment.

Simon Marrison, European CEO, LaSalle Investment Management commented, “There are clear signs of polarisation within many European countries and major disparities between city regions as uncompetitive locations fall behind because they can no longer rely on national momentum for sustained growth.  This is most apparent in the UK where London tops the Index but no other city gets into the top 30.  As a result, investors should be selective about where they invest as some locations will lead the still fragile economic recovery while others continue to fall behind.”

LaSalle compiled the 2010 E-REGI by ranking the top 104 major European cities using a combination of economic growth factors, the overall level of wealth, and the relative attractiveness of the local business environment. As a result of the financial and economic turmoil, there are significant changes to the top rankings in 2010, as the more dynamic cities benefit at the expense of locations still struggling to deal with the aftermath of the global recession, most notably the Greek and Spanish cities.

Robin Goodchild, LaSalle’s Head of European Research and Strategy, commented “The disparity between winning and losing cities highlighted in the 2010 E-REGI will become even more pronounced over the next few years.  One of the reasons for this is the reduced ability of European governments to even out growth through regional stimuli because of general fiscal constraints. It’s clear that weak locations in traditionally strong countries such as Germany, France and the UK have suffered compared to their economic powerhouses.  Conversely, cities in emerging countries are catching up from a low base to perform relatively better than those in more mature countries.”

Top 10 E-REGI Rankings for 2010

Source: LaSalle Investment Management, September 2010

The UK is the most polarised Western European economy, with one city (London) at the top of the ranking and all other cities close to or at the bottom half of the table.  UK regional cities, many of which are former industrial hubs, have struggled with the transition to a service-based economy and have lost ground in the 2010 E-REGI.  These include Belfast (99/-29), Liverpool (94/-40) and Sheffield (95/-19), with only Manchester (36/-1) holding its own.

After making a spectacular entry into the 2009 E-REGI, Moscow continues to score strongly and now ranks second.  The result reflects the size and exceptional growth platform of the city region, but fails to conceal deficiencies in other risk-related aspects of the ranking.  The key issue going forward is to take steps to restore confidence amongst foreign investors in the safety of investing in Russia.

In Germany, Munich benefits from strong economic growth prospects fostered by a balanced mix of strong global players, a diverse range of SMEs, an ongoing commitment to R&D and high levels of wealth.  Munich’s success is all the more impressive as it does not compete on scale – it is significantly smaller than London, Moscow and Paris.  Germany is bouncing back from a severe recession due to its relative competitiveness and a weaker Euro currency.  As a result, it is again the country with the highest number of locations in the top 20: Frankfurt (20/0), Stuttgart (13/-4) and Mannheim-Karlsruhe (17/-2).

As France’s major administrative, economic and financial hub Paris continues to occupy a top five ranking on the back of sustained growth prospects and high wealth levels.  The success and economic diversity of the city are driven by vigorous R&D activity, boosted by the creation of competitiveness clusters which have opened up new opportunities for cooperation between public and private sectors.  Among provincial French cities, Toulouse (11/+11) and Lyon (19/+4) climbed up the Index, though Lille (71/-18) slipped meaningfully down the rankings.

In the Nordics, Stockholm (5/-2) maintains a position in the top five reflecting its strong growth platform and comparatively high levels of wealth.  It is the largest Scandinavian city economy and has the highest growth rate among the regions capitals.  The Swedish economy is expected to recover strongly in 2010/2011 and the country’s business-friendly attitude is a competitive advantage.  Oslo has this year fallen two places to 6^th due in part to its reliance on revenues from the oil sector and Helsinki
(14/-7) lost its position in the top ten. But overall the Nordic cities have done extraordinarily well with all the region’s cities in the top 15. By way of contrast, Spain’s top city is ranked 46^th and while Athens is down in 87^th place.

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About E-REGI

LaSalle Investment Management has developed a quantitative model, the European Regional Economic Growth Index or E-REGI to help identify the cities and regions across Europe that have the greatest economic growth potential over the short-to-medium term, and hence where demand for real estate is likely to be strongest. E-REGI complements more qualitative approaches and is a valuable tool when combined with detailed real estate knowledge.

The analysis is focused on a subset of 104 major European cities, representing the locations with >500,000 inhabitants, plus all national capitals. E-REGI is a multi-factor model that ranks each city based on the weighted average score of 15 variables. In summary, the model combines economic growth factors, the overall level of wealth, and measures of the relative attraction of the business environment.

About LaSalle Investment Management

LaSalle Investment Management, Inc., a member of the Jones Lang LaSalle group (NYSE: JLL), is a leading global real estate investment manager, with approximately $37.5 billion of assets under management (as at Q2 2009) of private and public property equity investments. LaSalle is active across a range of real estate capital and operating markets including private and public, debt and equity and our clients include public and private pension funds, insurance companies, governments, endowments and private individuals from across the globe.  For more information, visit www.lasalle.com.