European commercial investment improves by +40%

Foreign interest holds up certain parts of Spain

Major German office markets continue to be weak

US residential property market may worsen

UAE’s property market continues its downward spiral

Australia property may be facing ‘undesirable strong growth’

European commercial investment improves by +40%

Direct investment in commercial property in Europe increased in Q3 2009 to €18bn, a +40% increase on the second quarter, according to Jones Lang LaSalle’s (JLL) update on the direct European commercial real estate investment.

Tony Horrell, head of European Capital Markets at JLL, said: “ This is the second consecutive quarter of increasing transaction volumes and we believe that we have now seen the lowest quarterly volumes that we will experience in this downturn (in Q1 2009). We expect volumes in Q4 2009 to be the strongest quarter of the year, and for full year volumes to reach in excess of €60bn. Despite the increase in transactional activity, we expect year end volumes to be down -45% on 2008, which in turn was down -55% on 2007.”

Investor interest remains focused mainly on prime, secure income producing product and the market remains segmented into these very prime assets and everything else. Active investors also have a clear preference for the deeper, transparent markets of Western Europe together with those markets where prices have fallen the furthest, by up to -50% in some cases. JLL believes the result of this is that markets across Europe are now experiencing different levels of investor attention and are facing very different prospects. This is leading to a more dislocated European investment market than JLL has seen for some time.

Horrell said: “As we moved through the summer period sentiment surrounding the market improved markedly and today there are clear signs of new found confidence in some European markets. Sentiment clearly has the ability to move markets (and often to trump fundamentals) and at the moment, sentiment is one of the key drivers of the increase in transactional interest and activity, which is evident in all sectors and most markets.”

Foreign interest holds up certain parts of Spain

According to the latest data from the Spanish National Institute of Statistics (INE), prices for new Spanish properties fell by -3.9% in the second quarter of the year and are now down by an annual -7.7%.

However, prices for resale property fell less in the second quarter than in the first. In the first three months of the year, prices were down -12.5% which slowed to -11.2% in the second quarter. The index also showed that areas of Spain that are popular with foreign property investors including Andalucia and Murcia are holding up well, whereas locations like Catalonia, Madrid and the Basque Country where prices increased the most have seen the largest price declines.

It is worth bearing in mind that Mark Stucklin of Spanish Property Insight believes that the official figures need to be taken with a pinch of salt as property developers believe that new-build property prices have decreased by -20% or even more.

In addition, according to figures from the Ministry of Development, residential planning approvals were down -62% to 71,683 in the first half of this year. Housing starts slumped by -60% in the second quarter of this year, compared with the same period in 2008. There were 96,472 new homes completed in the second quarter, -6.3% less than in the first quarter and -43% down on last year.

Major German office markets continue to be weak

According to Savills, the major German office markets such as Berlin, Dusseldorf, Frankfurt, Hamburg and Munich continue to be weak in the third quarter of 2009 however the cyclical downturn is showing signs of deceleration.

As was the case of the previous quarter, take-up in the first nine months of the year was almost a third (-32%) below the previous year’s figure, the exception being Berlin where vacancies increased across the board, on average almost every tenth square metre of office space in the major German city is unoccupied (9.4%).

Due to the weak demand, prime rents stand slightly below their previous year’s level in almost every market. Over the past months downward movement was only marginal ( Berlin, Frankfurt and Munich) or stable (Düsseldorf and Hamburg). Average rents are slightly below the level of Q3 2008. Furthermore, in numerous lease contracts concluded in locations or properties less sought after incentives of up to 10% of the agreed rent have been granted to the tenants. Hence the net effective rents in some cases may be well below the nominal rents published.

All of the five markets suffered a double-digit percentage reduction in take-up, with the largest falls being recorded in Düsseldorf (- 51%), followed by Munich (- 36%), Hamburg (- 31%), Frankfurt (- 26%) and Berlin (- 21%). Thus Berlin proves considerably more stable than three months ago when take-up had declined by -30% compared to the previous year. By contrast, Frankfurt performed considerably weaker compared to its half-year result (- 19%), not least due to the large-scale letting to Deutsche Bahn in Q1 which now has an increasingly reduced effect on the letting figures.

Savills forecasts a total take-up of approximately 2m sqm in the five markets for overall 2009  compared to 2.83m sqm transacted in 2008 marking a reduction of approximately -29%.

US residential property market may worsen

Analysis by the Amherst Securities Group shows that the residential property market in the US will worsen as a delayed pipeline of foreclosed loans begins to liquidate.

The analysis also indicates that the Government’s Administration’s Making Home Affordable Modification Program (HAMP) will have no lasting effect on keeping delinquent loans current. It said that signs of stabilisation in the property market that are being hailed as a recovery may soon recede as an overhang of the shadow inventory of foreclosures waits to enter the market. The general outlook that the housing market has bottomed is ‘premature’ optimism, according to the report.

Amherst estimates that there is a ‘shadow inventory’ of around seven million housing units, or 135% of a full year of existing home sales, compared with 1.27 million in early 2005.
 
The report said: ‘The backlog is due to high transition rates, low cure rates and a longer timeline for loan liquidation. In other words, loans continue to transition into the delinquency/foreclosure pipeline at a rapid pace, but are moving out at a very slow pace.’

It said the loans are ‘destined to liquidate’ and will impact on the signs of recovery seen in recent months by pulling down house prices through distressed sales.

UAE’s property market continues its downward spiral

According to a poll conducted by Reuters at the Cityscape Dubai property conference, residential property prices in Dubai are likely to fall another -10% in 2009 as financial woes linger.

The view is that unlike more mature markets in the UK and the US, the United Arab Emirates (UAE) real estate sector is not yet showing signs of recovery. Residential property has not yet bottomed out and has a 20% chance of picking up before 2011, according to the Reuters poll.

Around 22% said they expected Dubai property prices to hit a bottom in Q4 2009 and 44% predicted this would occur in the first half of 2010 and 22% thought in the second half of 2010. Some 11% expected prices to reach a bottom in 2011 or later. Prices in Dubai are expected to have fallen by -50% by the end of 2009 and by -60% by 2010.
 

The Reuters poll also found that residential rents in Dubai are seen falling by -45% by the end of 2009 and a further -10% in 2010. Three out of seven respondents expected rents to fall as much as -50% in 2009 and one by 30% in 2010.

In addition, the first ever Arabian Business Think Tank, a group of nine experts that will vote each month on major business issues in the region, said the panel voted 7-2 against any rise in residential property prices in the fourth quarter of 2009. It predicted that the UAE’s property market will continue its downward spiral into the rest of the year.

Australia property may be facing ‘undesirable strong growth’

The Royal Bank of Australia recently warned that the Australian real estate market is about to ‘explode’ as residential property prices continue to surge.

The latest price index from RP Data showed that house prices increased by +1.9% in August, the largest monthly movement since the group’s indices began in January 2005.
 Melbourne and Sydney recorded the biggest jumps in August, up +2.67% and +2.09% respectively. Australia’s two biggest capital cities have also outpaced the rest of the nation this year, with Melbourne prices rising +11.6% and Sydney up +8.67% in the first eight months of 2009. Overall, Australian house prices are up +7.9% in the same period.

Darwin was the only capital city to record negative growth in August, with prices falling -0.8%.
 
Tony Richards, RBA economist, said in a statement: ‘It is looking increasingly clear that Australia has avoided the large falls in housing prices seen in some other countries over the past two years or so. But looking forward, the risk is that we might move towards undesirable strong growth in housing prices.’