Luxembourg’s real estate markets, traditionally strong, are heading for a very appealing 2013: Luxembourg will be among the most attractive European real estate markets this year, according to the results of Ernst & Young’s “trend indicator real estate assets investment Europe”, a survey including Luxembourg for the second time. Participants consider Luxembourg to be an attractive location for real estate investments with over 90% of the participants stating that Luxembourg is attractive compared to other European countries. This is a remarkable leap compared to last year’s survey where only 74% considered Luxembourg as attractive in the European context. As a consequence, nine out of ten respondents expect more transaction activities in Luxembourg in 2013. As far as the transaction volume is concerned, in no other country surveyed are respondents so optimistic. “It does not come as a surprise that the anticipated high demand will lead to increasing or at least stable prices for office buildings in prime locations, which we consider to be the most sought after segment”, commented Michael Hornsby, Partner, EMEIA Real Estate Funds Leader. Equity and AIFM There are only a few clouds on Luxembourg’s 2013 real estate horizon: For instance, the level of equity required by debt providers will be an impediment for deal flows. “On the one hand, the Luxembourg economy and the real estate markets are strongly intertwined with the financial sector. This makes possible challenges in financing a possible challenge for the real estate industry as a whole”, said Michael Hornsby. “On the other hand, financing real estate has become more demanding not only in Luxembourg, it has become an international phenomenon in the recent past. However, the past has proven that financing real estate for promising products is still possible despite all hurdles.” Another cloud in the sky might be the alternative investment fund managers directive (AIFM), affecting some of the indirect vehicles investing in real estate. Again, AIFM is a general European topic, not only a Luxembourg-specific issue. “Future will tell which countries and legislations are more affected from the investors’ point of view. Recent developments in Germany are evidence of the dynamism in this process from regulation drafts towards legislation”, commented Michael Hornsby. He added “Given the size of our country, the political climate and the links between the government and the industry, Luxembourg is often in the lead when it comes to the development of innovative legislative responses to current market needs. The AIFM-directive is a current example.” The European real estate market in general – a rather positive outlook The survey was conducted in 15 European countries, including Luxembourg. In total, approximately 500 companies participated in the survey. The market participants interviewed consider the vast majority of the surveyed countries attractive or even very attractive. However, non-Euro-currency countries are currently seen more attractive for real estate investments than Euro-currency countries. It is apparent that this is a reflection of the ongoing difficulties in the Eurozone. For the same reason, the southern and periphery European real estate markets are viewed with more caution than central or northern markets. The transaction activities expected for 2013 are a mirror of this situation: In almost all countries, the Eurozone crisis and (as a result) fears of inflation are the main drivers that stimulate transaction activity – again apart from both, the non-Euro-currency countries, that tend to be less affected by the current “capital escape into real estate”, and the European South. Though individual expectations differ, demand is recognised for all types of real estate: Demand for retail properties remains moderate to strong. Residential real estate even faces a very strong demand in most countries. Concerning office real estate, market participants currently see a strong interest. In general, as a consequence of the expected demand, purchase prices are predicted to develop positively or at least remain stable in the segments on which investors focus.