German property funds target Britain

Regional shopping centres and office developments are the latest target of cash-rich German property funds DEGI, DESPA and CGI, the most active players last year in the UK commercial property market.

German property funds accounted for nearly pounds 1bn of purchases in 1995 and 1996, including such landmarks as the Lloyd's building in London for pounds 180m and the St Enoch shopping centre in Glasgow, also purchased by DESPA, for pounds 159m.

"There is still a lot of confidence in the investment market, and I am expecting German funds to be competing for some of this year's largest deals," said Angus McIntosh of property consultants Richard Ellis.

Property experts believe that the funds have now got a good base of high quality properties, mostly in London, and will seek to branch out into more regional retail and office developments.

The foray into UK property was originally a safety-valve measure to stop the cash element within the funds from rising above the limit imposed by their articles of association. As a result Germany has displaced both Japan and Sweden as the biggest foreign investor in UK property.

"These German property funds are still awash with liquidity, and their home market still does not look as good as the UK market," said David Basra of DTZ Debenham Thorpe. "With the good quality base they have got, the natural thing to do would be to expand their presence here in retail and venture further away from large cities."

Mr Basra added that the improving market would see more sellers come out of the woodwork, and investments in high quality buildings could still reap returns of more than 10 per cent in rent and capital appreciation, "which is respectable in a low-inflation environment".