ING raises property bubble fears

LONDON Wed Nov 11, 2009 10:22am GMT

LONDON (Reuters) - ING Real Estate has raised concerns that a recent rise in UK commercial property prices could lead to a bubble, possibly causing values to fall again by end-2010, one of its senior executives said on Tuesday.

"The size of that downturn will depend on the actual rate of the capital appreciation that we see now ... if it's too big you could create a bubble," Kevin Aitchison, CEO of ING Real Estate Investment Management UK told Reuters in an interview.

The view echoed other major property investors who warned this month Britain's commercial property market recovery could be short-lived, if prices rise too quickly without growth in the economy and rental rates.

UK values rose 1.1 percent in September, as they start to recover from a two-year downturn that saw valuations plunge 45 percent, the benchmark Investment Property Databank (IPD) index showed last month.

ING Real Estate, one of the world's largest property investors with a portfolio of 100 billion euros, estimates actual UK market prices to have risen up to 23 percent so far this year, however, due to huge investor demand.

"At the moment investor demand is huge, but because the occupier side continues to deteriorate, the underlying fundamentals for property performance actually aren't there," Aitchison said on the sidelines of an ING Real Estate seminar.

He remains bullish about the long-term prospects for UK commercial property and sees the next 3-5 years as a positive time for UK assets as the occupier market recovers and rents start rising in 2011.

TREADING WITH CAUTION

The company still has equity of between 200-300 million pounds available for UK real estate, but is in no hurry to invest the money right now, due to continued risks in the market, Aitchison said.

"We are treading with caution. We will certainly try to invest that amount of money but it has got to be the right stock," he said, adding weak occupier demand also makes this a bad time to invest in the development of new projects.

ING prefers UK real estate sectors such as retail properties such as shopping centres and retail warehouses, and multi-tenanted industrial estates, in particular focusing on assets on long leases.

It is focused mainly on raising a UK property fund in partnership with private equity firm Hamilton Bradshaw, and does not have imminent new fund launches in the UK, Aitchison said.

"We're always conscious of the fact that we still have cash for existing clients, and we need to make sure that we're not raising money for the sake of it," he said.

Asked about the impact of an imminent split of ING Real Estate's parent, the Dutch bancassurer ING Group, Aitchison said it "will be business as usual".

ING Group is selling its worldwide insurance operations over the next four years as part of a restructuring ordered by the European Commission.

"Even if we were real estate on its own, or part of insurance -- real estate is one of the biggest managers in the world, insurance is fifth or sixth biggest in the world -- so we will remain part of a substantial business," Aitchison said.

(Reporting by Daryl Loo; Editing by Andrew Macdonald)

(See www.reutersrealestate.com for the global service for real estate professionals from Reuters)