Capital depreciation in Nordic commercial property
Capital depreciation in Nordic commercial real estate markets led to annual capital growth of -5.4% in 2008, according to the IPD Nordic Annual Property Index.
Based on local currencies, the capital return over last year was the lowest annual figure in the index’s nine-year history. In 2007, capital growth totalled 8%. Annual income return last year climbed 20 basis points to 5.5%, resulting in a -0.1% total return in 2008. The four-country constituent index is composed and weighted as follows: Sweden, 45.1%; Finland, 21%; Denmark, 17.1% and Norway, 16.8%. All four individual countries contributed negative capital value movements to the Nordic Index.
However, the scale of the negative movements reveals that the index is composed of two countries so far mildly affected, and two countries more profoundly affected, by the impact of rising yields and the credit crunch. At one extreme, Norway was most significantly affected by sector-wide yield rises, producing a capital return of -9.9%, followed by Sweden's -7.9%. By contrast, Finland produced the shallowest negative capital return, at -1.2%, while Denmark's annual capital growth was -2%.
At sector level, the steepest movements in capital values were in offices, at -6.4% according to the IPD Nordic Index, pulled by the relative underperformance of both Norway and Sweden, which returned -12.5% and -8.2%, respectively. Some way behind was industrial, which ended 2008 at -4.2%, followed by retail, at -3.8% − both sectors pulled, principally, by the underperformance of the same two countries. By contrast, Denmark and Finland both recorded shallow negative returns in offices and industrial with the only divergence in this trend in the retail sector, where Denmark produced the only positive annual sector capital return, at 1.6%, while Finland's was -3.3%.
Bulgaria’s house prices fall on average by -12.4% in Q1 2009
House prices all across Bulgaria’s regional cities have slumped in the three months through March 2009 from the previous quarter, according to National Statistical Institute (NSI) figures.
Average prices fell -12.4% on the quarter but the annual decrease was a lower -8.4%, as the uptrend reversed only in October. Experts say residential prices will slip to their lowest in Q3 2009 of up to -30% on an annual basis.
From January to March, prices plummeted the sharpest in Veliko Tarnovo (-25.1%), Kyustendil (-21.5%), Blagoevgrad (-20.5%), Rousse (-18.8%) and Vidin (-17.8 %).
There were decreases of less than 5% in Shoumen, Dobrich, Razgrad, Montana and Gabrovo.
On an annual basis, a few regional cities managed to defy the downturn from January to March, with marginal gains registered in Bourgas, Plovdiv, Vratsa, Montana, Razgrad, Sliven and Smolyan. Prices in all of them peaked last summer and are now cooling off at a slower pace.
Retail property investment faces a slowdown
Direct retail property investment in Continental Europe totalled €980m in the first quarter of 2009, which is -37% down on the previous quarter (€1.5bn), according to Jones Lang LaSalle (JLL).
Western Europe accounted for the vast majority (89%) of transaction volumes as European investors are increasingly focusing on their home markets. The proportion of retail investment volume accounted for by domestic investors has increased from one third in 2008 to over half in Q1 2009.
Jeremy Eddy, director of European retail capital markets for JLL, said: “Investors continue with their ‘wait and see’ strategies in Continental Europe, with most markets seeing some fall in prices in the first quarter. At the same time, the high cost and lack of access to finance continues to restrict market liquidity, particularly for larger transactions. There is demand for prime product in the best locations and low vacancy rates in many top schemes provide the secure long-term income that investors seek. ”
Italy and Germany were the most active markets in Continental Europe, accounting for 31% and 28% respectively of total transaction volumes. In Italy, two deals over €100m were completed, but Germany was the most active market in terms of the number of deals completed in Q1 (9). Investment into Central and Eastern Europe (CEE) was quiet, due in part to the lack of domestic investors in these markets.
Shopping centres were the prime target for investors but accounted for just over one third of the total volume transacted, compared with 55% in 2008, reflecting the lack of prime product on the market and the difficulty in raising finance for funding larger transactions.
However, those centres with strong defensive qualities in terms of location, scale, tenant covenant and quality remain a key target for investors in 2009. Factory outlet centres, accounting for 26% of transaction volumes, were also a target in Q1.
Worldwide News
Official, Australia is in a recession
Australia is in its first recession since 1991, according to Glenn Stevens, the Governor of the Reserve Bank of Australia (RBA), in a speech titled ‘The Road to Recovery’.
Stevens said there was no precedent for escaping a global recession in which virtually all of the country’s trading partners were contracting. In addition, Kevin Rudd, Prime Minister of Australia, recently said: “The worst global economic recession in 75 years means it’s inevitable that Australia will be dragged into recession.”
Gross domestic product (GDP) had already declined by -0.5% in Q4 2008, and another drop looks likely for the first quarter of this year. In April, the central bank decided to cut its key cash rate by -0.25%, taking rates to a record low of 3%.
The Government has announced spending packages worth over AUS$53bn (US$36bn) in recent months and more is expected in its annual budget in May. According to Stevens, this stimulus has helped Australian households stay relatively less depressed than in many other developed nations.
Singapore’s unemployment rate highest in over three years
Singapore’s unemployment rose to the highest in over three years in Q1 2009 as the economy suffers its worst ever recession, according to Government data.
The data shows that the unemployment rate rose to 3.2% on a seasonally adjusted basis, the highest since Q3 2005 and rising from 2.5% at the end of 2008, as the manufacturing sector shed jobs.
The manufacturing sector saw the largest contraction of employment in the first quarter of 2009 with a loss of nearly 20,000 jobs from the previous quarter. The sector laid off 9,000 workers, mainly in the electronics industry. The construction and services sectors, however, saw an increase of 8,500 and 10,300 jobs respectively.
Credit profile of Gulf banks is likely to suffer
The credit profile of Gulf banks will likely deteriorate this year, according to Standard and Poor’s Ratings Services.
This will be notably because of the tougher operating environment, lower business volumes, tighter liquidity and the region’s stock market slump since the end of Q3 2008.
Economic conditions in the GCC rapidly deteriorated shortly after oil prices dropped from their peak in July 2008. At the same time, liquidity shrank because of rapid loan growth and the repatriation of foreign funds.
In addition, stock markets in the region started to plummet in response to weaker economic and earnings prospects, a drop in investor confidence and fall in business volumes.
To date, the ratings on about one-third of the GCC banks have a negative outlook or are on CreditWatch with negative implications. This suggests that additional negative rating actions could occur this year.
