According to Capital Economics’ Euro-zone Commercial Property Chartbook, the commercial property correction in all Euro-zone economies has some way further to run thanks to a deteriorating outlook in the occupier markets.
The economic outlook for the Euro-zone is deteriorating alarmingly, by -1% in Q4 2008. To date, the industrial sector appears to have borne the brunt of the slowdown. Industrial surveys now point to output in the sector falling at double-digit rates.
Country-level economic indicators suggest that the problems of rising unemployment, weak consumer confidence and falling export orders are widespread. This year, gross domestic product (GDP) will contract by at least -1.5% in 2009 in almost all member states. Only Finland will deliver positive growth in 2010.
Commercial property investment market indicators continue to show that activity levels are falling. With lenders intending to tighten credit conditions yet further in early 2009, Capital Economics cannot see a meaningful recovery in the investment market this year.
The final quarter of 2008 saw property yields rise further in all sectors. Office markets saw the largest and most widespread increases. Property is beginning to look better value relative to bonds but it still looks expensive relative to equities.
Commercial property occupier market indicators showed that office take-up continued to decline in the final stages of last year and confirmed that office rents have begun to fall in a number of cities. The same is true of industrial rents. As it was in the early stages of the UK correction, however, retail rental growth appears a little more resilient. But, given high development pipelines and a very weak consumer spending outlook, Capital Economics doubts this will last long.
‘German retail sector more resilient than the UK’s’
Treveria, the German-focused retail real estate investment company, has said that it believes the German retail sector should remain more resilient and less volatile than the UK’s.
In a trading update, the company said: ‘Moreover, we believe that our diversified portfolio which is spread across over 200 separate German towns and cities and is principally made up of retailers selling everyday goods and essentials rather than premium or luxury brands, should be better positioned to weather these more difficult market conditions.’
Treveria was formerly known as Dawnay Day Treveria but severed its links when Dawnay Day went bust. Treveria confirmed that it completed € 76.2mof property sales in Q4 2008 and a further € 3m of sales are expected to complete within the first quarter of 2009.
There have been no further sales noted since 29 th September 2008. ‘Market conditions have become more difficult in the last four months with ‘a disconnect’ between the level at which potential vendors are willing to sell and that which purchasers are able to structure acquisitions,’ Treveria said.
Office take-up across Europe falls by -27%
Overall office take-up volumes in Europe during the fourth quarter of 2008 were down -27% on the previous year at 3msq, and down -2% quarter-on-quarter (q/q), according to Jones Lang LaSalle’s Q4 2008 European Office Clock.
In Western Europe, further office rental falls during the fourth quarter were reported in London West End (-11.6%), Dublin (-5.2%), Barcelona (-3.8%), Brussels (-3.5%) and Madrid (-1.8%). Stockholm (-6.8%) and Milan (-3.5%) entered the rents falling quadrant on the Office Clock for the first time in this cycle.
Conditions have changed dramatically in some Central and Eastern Europe markets with prime office rents decreasing by -26.3% in Moscow and -15.2% in Warsaw during the fourth quarter, although rents in Budapest and Prague stood firm. All other European markets recorded stable prime rental levels with only Lyon recording positive prime rental growth of +2% on the quarter. As a general trend rental incentives increased over the last quarter, including those markets where prime face rents remained flat.
Overall, take-up during 2008 reached 12.5msq which is -12% down on 2007 volumes. On a city level, the highest falls during 2008 were recorded in Dublin (-40%), Madrid (-38%), Stockholm (-36%), Barcelona (-23%) and Edinburgh (-20%). Activity also decreased in Europe’s largest markets, London (-15%) and Paris (-14%).
In the German markets the decrease in office demand has been smaller in comparison to other European countries, however take-up volumes are falling there too. Only six out of 24 markets recorded take-up volumes above levels witnessed in 2007: Luxembourg, Prague, Rotterdam, Milan, Warsaw and Budapest.
Worldwide News
Deflation more likely in the US, Europe and Japan
The International Monetary Fund (IMF) said there is a ‘significant probability of much more negative deflationary outcomes and hence a deeper and more prolonged recession’ in the US, Europe and Japan.
The IMF considers Australia to have a minimal threat of deflation although the Reserve Bank has some concerns and is keen to avoid cutting interest rates to the near-zero levels of the US and Japan that it believes would raise the risk of deflation.
The fund has developed a ‘deflation risk’ indicator, in which measures below 0.2, (where Australia sits) are low risk, while measures greater than 0.5 (the US and Japan) are high risk. For the world as a whole, the measure of 0.35 shows moderate risk.
The IMF analysis said Australia is protected partly by the persistence of inflation. It has historically taken about 18 months for a shock to core inflation in Australia to lose half its strength. In the US, Europe and Japan, by contrast, it takes only nine to 12 months and, as a result, the IMF considers these areas are most threatened by falling prices.
The IMF said governments should act urgently to forestall the risk of deflation. It said the highest priority is resolving the financial sector’s problems.
Sri Lanka’s economy may expand quicker than estimated
Sri Lanka’s economy may expand faster than previously estimated in 2009 as the Government adds stimulus measures and prospects of peace spur investment, according to Nivard Cabraal, the central bank Governor.
Growth may be 6% this year, more than an earlier forecast of between 5-5.5%, Cabraal said in an interview in Kuala Lumpur. Inflation is easing faster than expected, allowing the central bank to be “less tight” in monetary policy, he said.
Last month, the bank cut the interest rate on loans to commercial banks to stimulate the economy amid a global slowdown. Sri Lanka in December unveiled a 16 billion rupees ($140m) stimulus package that includes cutting retail fuel prices and removing some taxes.
The central bank has various tools available to ease “monetary tightness” and is ready to use them to boost growth as inflation slows, Cabraal said. It has left its benchmark interest rate unchanged at 10.5% since early 2007. Consumer prices in the capital Colombo rose 10.7% from a year earlier in January, after increasing 14.4% in December, according to the statistics department.
Property in Monte Carlo is the most expensive in the world
With an average price tag of $7,151sqm, property in Dubai is the fifteenth most expensive in the world, according to a recent study by property research group Global Property Guide.
But it is still cheap compared to Monte Carlo where a top-end apartment costs on average $47,578sqm – almost seven times as much as Dubai.
Property in Moscow, which came in second place, costs $20,853sqm, followed by London at an average of $20,756. At the other end of the scale, Cairo was found to be one of the cheapest cities in the world, with a high-end apartment there costing an average of only $574sqm.
Property research group Global Property Guide collected the data based on the average price of a 120 square metre high-end used apartment in the city centres of more than 110 cities around the world during 2008. As availability of credit has dried up, prices have fallen and developers have scaled back projects.
Dubai property prices slumped by -23% during the last quarter of 2008, with villas showing a more marked decline than apartments, according to a report published by HSBC in January.
Anecdotal evidence suggests that real estate prices have fallen by as much as -35-50% in developments such as the Dubai Marina, Downtown Burj Dubai, and the Palm Jumeirah.
