Russian office property looks set to remain subdued

Irish minister Ahern bans upward-only rent reviews

Spanish property has not yet hit bottom

Israel continues as the top performer

Japan Housing Starts May Drop to 48-Year Low

Brazilian economy grows by +8% in 2009

Russian office property looks set to remain subdued

Commercial property in Russia looks set to remain subdued according to a Capital Economics report because of the depressed level of economic activity in the country.

Gross Domestic Product (GDP) growth is forecast to increase from 1% to 4% in 2010 but would most likely slow again in 2011, down to 1.5%, with it unlikely to return to pre-crisis levels until 2013.

The report stated: ‘With economic activity and employment in Russia likely to remain at depressed levels over the next few years, the level of office occupier demand is also likely to remain subdued. Therefore, the chances of a rapid return to positive rates of rental value growth seem slim to us.’

Office vacancy rates in Russia have fallen by over -50% since their peak in Q2 2008, which is worse than any other EU country, according to Capital Economics. In comparison, other countries in emerging Europe such as Hungary, saw a -8% fall and Poland a -28% drop.

Moscow vacancy rates fell from 19% to 17% in Q3 2009 as developers scaled back the pipeline of speculative office space due to complete in 2010, with occupiers sensing the bottom of the rental cycle taking advantage of rent reductions to move to better locations with higher quality space.

Irish minister Ahern bans upward-only rent reviews

Ireland ’s minister for justice, equality and law reform Dermot Ahern has signed legislation, in a move widely condemned by the Irish property industry, that bans upward-only rent review clauses in business leases from 28 February 2010.

Ahern said: "The practice of including upward only review clauses in business leases is a deeply entrenched one. I look forward to more equitable business arrangements being put in place in the future which take account of the reality facing many business owners and retailers.”

CB Richard Ellis (CBRE) denounced the move as occupiers of commercial property in Ireland are facing huge cost pressures. It stated: ‘The amendment initially appears positive, but it will do absolutely nothing to help existing tenants in the short-to medium-term and is potentially very harmful to the Irish investment market.’

CBRE believes it would be extremely difficult to obtain funding for investment purchases where new leases apply as banks fund and investors buy property investments on the basis of projected cash flows. This would be reduced by the new ban and would also place Ireland at a competitive disadvantage to the UK which has upward only rent reviews. According to CBRE, a two tier investment market would emerge with investors paying a premium for properties on existing leases and having limited appetite for properties let on leases after February 2010.

Guy Hollis, managing director at CBRE - Ireland, said “The net effect of this legislation will be to reduce the attractiveness of Ireland to investors and banks, which will in turn further undermine property values at a time when stabilisation was just starting to emerge. Pension funds and investors generally, as well as the lending banks, have seen commercial property values fall by as much as -60% since 2007. This proposal will further erode value without any benefit to existing tenants, which is supposedly the reason it is being introduced in the first place.”

Spanish property has not yet hit bottom

According to a new report from Aguirre Newman, the Spanish residential property market has not yet hit bottom and could drop another -27% in 2010, as overall property transactions in 2009 dropped by around -41% compared with 2008.

The report, Coyuntura Global del Mercado Inmobiliario Español, warned that bank valuations continued to overestimate the true worth of property in Spain and that the housing market will remain depressed as banks sell off their stocks of repossessed homes.

There are currently 610,000 new homes in Spain which are unsold with a further 380,000 in the final stages of construction and 520,000 second hand homes available for sale.

Javier Garcia-Mateo, director of analysis and investigation, said: ‘Current home price estimates do not reflect true market values. Banks and real estate companies that own or have financed unsold new homes will have to accept price cuts of around 27%.’

However, the report does expect office and retail rental prices to stabilise in 2010, ahead of any possible recovery in 2011.

Banco Santander, Spain’s biggest bank, together with its consumer unit Banco Espanol de Credito SA, has acquired real estate valued at €4.1bn from failing developers. With analysts warning that if this is put on the market in 2010 the industry will be suffer hugely.

Israel continues as the top performer

Israel has continued as the best performer in Knight Franks Global House Price Index, having recorded an annual increase of +13.7% at the end of Q3 2009.

The recovery in global house prices continues with values increasing in 68% of the countries surveyed reporting prices changes for Q3 2009. House prices however are still down on 12 months ago in 57% of locations around the world. Dubai recorded the largest annual drop (-47%) but posted a modest increase of +1.2 in Q3.

Liam Bailey, Knight Frank’s head of residential research, said: “There is still a clear polarisation from the top to the bottom of the table. Israel remains the best performer on an annual basis and is the only country to have recorded double-digit growth during the past 12 months. Prices in Dubai have fallen the most, despite posting a small recovery in the third quarter. The recent debt issues with Dubai World and the subsequent loss of confidence by investors mean even this nascent rally is already under threat.”

Singapore saw the biggest rise in Q3 2009 with a +15.2% increase but is still down -14.5% on an annual basis, whilst Australia continued its upward trend with a +4.2% quarterly increase, which was matched by New Zealand. Thailand, however, had the highest drop in the region with a decrease in prices of -13.5% for Q3 and -18.4% annually.

Bailey said: “Other locations where growth is accelerating include Australia, which was relatively unscathed by the credit crunch. Many Asian economies are also performing strongly with quarterly growth of +6.3% in Hong Kong and +2.5% in mainland China. Q3 figures are unavailable for India, but prices were already rising in Q2 and that trend looks set to continue.”

Japan Housing Starts May Drop to 48-Year Low

According to Takeo Higuchi, the head of Japan’s largest home builder, Daiwa House Industry Co, Japan’s housing starts may drop to a 48-year low as the flagging economy puts off homebuyers.

Annual starts could go as low as 600,000 in “coming years” but it looks like starts will drop by more than -20% to 800,000 in the current year ending March 2010. Starts of 600,000 would be the lowest since 1961. Japan’s home starts were only 1.04m in 2008, down from a peak of 1.9m homes in 1972, according to data compiled by Ministry of Land, Infrastructure, Transport and Tourism.

Higuchi said: “The property market will remain sluggish for another year or two because Japan’s economy is in bad shape. High unemployment and falling wages are scaring away many potential buyers.”

Sales are also forecast to drop -7.2% to 1.57 trillion yen ($18bn) in the year ending March 2010.

The nation’s unemployment rate touched a post war high of 5.7% in July and wages have declined for 17 consecutive months.

Brazilian economy grows by +8% in 2009

Brazil 's economy grew at an annualised rate of +8% in Q3 2009 according to the finance minister Guido Mantega, and no change is expected in Q4.

He stated at a meeting of the Council for Economic and Social Development that this result has led the Government to forecast positive growth for all of 2009. Growth of +5% is expected in 2010 with similar levels expected up to at least 2014. Brazil's economy had an average annual growth of +4.2% during the period of 2003-08.

Mantega stated the strong performance of the domestic market has allowed the Brazilian economy to bounce back quickly after feeling the effects of the global crisis in late 2008.

He continued that +5% growth in investment is assured just with the public works needed in preparation for the 2014 soccer World Cup and the 2016 Summer Games in Rio de Janeiro