British Land sees recovery “across its portfolio”

British Land, Britain’s second biggest developer, provided some much-needed confidence to the property market by reporting that the value of its office blocks and shopping centres had risen 8.2 per cent in the last three months to December 2009; rising to £7.9 billion. The rise in its net asset value per share to 438p – a benchmark measure – amounted to an 18 per cent rise in value over the nine months since its financial year began, and was well above forecasts for a 425p value. Chris Grigg, the chief executive, who replaced Stephen Hester a year ago, said: “The early signs of recovery seen in the second quarter extended right across our portfolio during the last three months of 2009.”

Young Surveyors Networking

Tweet This

The punditry comment continues in the aftermath of the announcement of Deloitte / Drivers Jonas merger to form Drivers Jonas Deloitte.

Giles Barrie, Editor of Property Week blogged with his thoughts on the upsides and possible downsides. Essentially, if I may be allowed to paraphrase his view was:

Upsides:

• Drivers Jonas’s property experts will be able to work alongside Deloitte’s receivership teams (hopefully this is only a relatively short term area of rich pickings).
• Drivers Jonas is the most consultancy-based of the top 20 agency firms, and its collegiate approach to business life will fit in well with Deloitte.
• The merger takes Drivers Jonas global.
• The deal is good news for the surveying profession as it indicates that property professionals are valued.
• The owners of Drivers Jonas become co-owners of Deloitte, a firm which, in the depths of recession, made a profit of £601m in 2008/09.

Potential downsides:

• Drivers Jonas brokers might encounter problems operating in the new environment.
• In the case of receiverships, will Deloitte be able to show that it has secured best value for creditors by using Drivers Jonas Deloitte rather than an unrelated provider?
• Property professionals do not always fit in with bigger corporate entities.
• An air of sadness about the end of Drivers Jonas’s independence after more than 250 years as a standalone firm.

Also on Property Week TV is an interesting interview with Matthew Elliot and Richard Owen, equity partners of Drivers Jonas commenting upon the merger. It is interesting that they say Deloitte is particularly looking to expand the transaction side of the business.

And finally on Drivers Jonas Deloitte for this week there is a fairly well informed debate on the Linkedin UK Commercial Property Group.

It was rumoured during the week that Capita may be in talks looking to purchase NB Real Estate, possibly due to complete in early February. It is thought that Capita will pay £10m immediately, with a further £10m depending on future performance. NB Real Estate potentially appeals to Capita and their Capita Symonds business because of its strength in property management, which will be used across the enlarged group’s portfolio.

Colliers CRE – 2009 wasn’t a great year

Colliers CRE announced that it expects to post a loss of around £10 mln for the year 2009 on the back of difficult trading conditions. Most of the loss (around £8 mln) was generated in the first half of 2009, Colliers said, as activity started to pick up in the second half of the year. They said that the fourth quarter was their strongest in terms of revenue generation in 2009, and they expect that momentum to continue into 2010. Colliers completed an £18.4 mln share capital issue in October last year, in efforts to expand the group’s equity base. ‘This fundraising both strengthened the balance sheet and also brought in FirstService Real Estate Advisors (FirstService REA) as a major shareholder.

Hotel Investment – the figures are in for 2009

Investment in EMEA hotels fell by over 50% in 2009, according to research from Cushman & Wakefield Hospitality. Total investment volumes totalled EUR 3.2 bn in 2009 against EUR 6.4 bn in 2008, with 50% by value in 2009 being distressed sales. The 2009 total marked an 85% fall on 2007’s record figure of EUR 19.8 bn. Although the UK market has suffered the sharpest decline over the last three years, it remained the most active EMEA market with 29% of total volumes or EUR 935 mln invested despite a fall of 50% in 2009 alone. France and Germany were the next most active markets with 16% and 9% of total volumes invested respectively (EUR 520 mln and EUR 300 mln). The largest European deal in 2009 was the purchase of the 560-room Radisson Blu Hotel in Hamburg by Invesco Real Estate from the Azure Group for EUR 155 mln. This was closely followed by the purchase of the Aviemore Highland Resort in Scotland by MacDonald Hotels from administrators PricewaterhouseCoopers for EUR 153 mln. The year ended on a high with the purchase by a subsidiary of BBVA of a hotel development on The Strand in London for about EUR 125 mln, Cushman & Wakefield said.

The shape of the property recovery

Leading experts in the commercial property sector in the UK have predicted a cautious year for listed real estate which will see the office market recover far more strongly than industrial, retail and residential property. The latest Expert Panel survey commissioned by Reita, the online portal for real estate investment trusts in the UK, shows that less than 5% of respondents think the remarkable recovery in asset values will continue strongly during 2010. However, different parts of the market are moving at different speeds, and there remains concern that the wider market – particularly secondary stock not included as part of IPD universe – could take another year to 18 months to catch up with Mayfair and the City. As between different sub-sectors, the Expert Panel remains most optimistic about offices, with 48% expecting it to recover faster than retail, industrial and residential over the next 12 months.

Tweet This

UK a touch more positive than USA?

A US commentator during this week noted that while the pace of commercial real-estate sales remains anemic, a few gutsy real-estate experts are saying prices have stabilized and are even, in some cases, rising from their lows of the recession. Backers of this theory point to the loosening in the public capital markets, which has allowed dozens of real-estate investment trusts and to raise debt and equity financing to fix up their balance sheets. The bulls also say investors who had been sitting on the sidelines are becoming more active, especially foreign (to the USA) buyers like HSBC Alternative Investments Ltd., which is buying 1625 I St. in Washington D.C. in a deal that values the office building at a respectable $203.4 million. But one major index shows values continuing to decline as of late last year. Market bears note that with unemployment high and rents and occupancies continuing to fall nationwide, values also have further to drop. Both sides agree that any real-estate recovery would be imperiled if interest rates rise significantly. The differing opinions and cross-currents are a reflection of the moribund commercial real-estate market in which there are huge questions about the critical issue of property values because so few properties sold last year. Last year, there were only $54.4 billion in transactions, compared with $181.6 billion in 2008 and $557.8 billion in 2007, according to Real Capital Analytics. The conclusion of the US commentator is that “Calling a recovery can be tricky. More than two years into the housing crisis, experts are still debating whether that market has hit bottom, despite signs of price improvement in some parts”.

London more favoured than Washington & New York

London surged as the top destination for commercial real estate investment, beating out Washington D.C. and leaving New York in the dust, according to a recent survey by the Association of Foreign Investors in Real Estate (AFIRE). London’s score was 31 points higher than second-place Washington and 40 points ahead of third-place New York. Last year, London was in second place, four points behind Washington and only two ahead of New York. Investors believe that commercial real estate prices in London already have bottomed out.  However, prices in the U.S. have further to go down because of differences in accounting practices. “London currently offers investors the advantage of a “re-priced” market,” James Fetgatter, AFIRE chief executive, said. “The re-pricing began sooner than it did in other cities.” The survey of the association’s nearly 200 members was conducted in the fourth quarter 2009. Survey respondents own more than $842 billion of real estate globally including $304 billion in the U.S.

IPD figures show capital growth in UK

Tweet This

Tweet This

Burj Dubai Unveiled

Sheikh Mohammed bin Rashid al- Maktoum, Dubai’s ruler,  celebrated this week with a global milestone he can be proud of- the tallest building on the planet. The £1 billion Burj Dubai is at least 2,717ft from its base to the tip of its spire — that’s more than half a mile, the equivalent of three-and-a-half Canary Wharf towers or two Empire State buildings stacked up. The tower (now known as Burj Khalifa) is more than 1,000ft higher than its nearest inhabited rival, Taiwan’s 1,671ft Taipei 101. It is also the tallest man-made structure in the world, surpassing the 2,063ft KVLY-TV mast in North Dakota, America.  The steel-ribbed, glass-clad structure looks like a giant hypodermic needle piercing the desert sky. As the 169-floor building rises, it passes through several climatic zones. The temperature at the top is up to 10C cooler than at the bottom.  It has the highest swimming pool in the world, on the 76th floor, and the most elevated place of worship with plans for a mosque on the 158th floor.  Its Y-shaped plan – three wings extending from a central core, like the roots of a tree – “confuses the wind”, in the architects’ words, while the core stops the wings from twisting (which would give top-floor occupants nausea). For super-tall buildings – and surely there will be more, one day – this “buttressed core” design is likely to become the prevailing form.

King Sturge Predict “Boom” in 2010!

2010 will be a boom year for commercial property investment with the best returns for four years, according to Angus McIntosh, Head of Research at King Sturge. He cautioned, however, that the boom year may be a false dawn. ‘Total returns may well stay positive but capital values may fall again by 2012,’ he said.  McIntosh believes commercial occupational markets across Europe will remain soft for two-five years, with rents continuing to fall. ‘Take-up of office space (as with others including industrial and retail space) will be very selective over the next year or two. Lack of demand for space in both the private and public sectors will result in very few new development projects for two-five years.

A Dash of Optimism from CBRE

CB Richard Ellis expects investment activity in the European commercial real estate market to total some EUR 60 bn in 2009, around half of 2008’s total. In the first three quarters of 2009, the company registered around EUR 41 bn of investment deals with a steady increase in activity each quarter since the low of EUR 12 bn in the first three months of the year. ‘We expect that this will continue, with Q4 seeing the highest level of activity for the year,’ the adviser said in a preview of its forthcoming report ‘ After the Storm: Where Next for European Property?’  CBRE  expects that the steady improvement that has been seen throughout 2009 will continue in 2010 with higher levels of activity expected in the year as a whole. ‘The recent upturn in investment activity suggests that many investors believe the European market is approaching the bottom of the cycle; and in some cases, it may well be past that point,’ said Michael Haddock, Director, EMEA Capital Markets Research, CBRE.

Gerald Eve Report a Not Too Bad Year

Tweet This

A total of 1.205 property & construction professionals gave their views as to the overall employment health of the property & construction sectors in Q1 2010 of which 972 went on to give a more detailed view as to the prospects by specialism.  Click on the graphic at the bottom of this post to see an enlarged copy of the graphical results.

To make sure that your views are included in the next set of survey results (for Q2, 2010) then make sure to take the 10 seconds to complete the survey here:

Commentary:

• Overall sentiment remains quite strongly negative, although the averaged “consensus” view has nudged slightly “less negative” to 3.8 on a 9 point scale, where 5 is “neutral”.
• Only 15% of respondents saw the overall employment prospects for the sectors as anything better than “neutral”.
• The most strikingly negative specialisms were “Construction” and “Planning, Design & Development”
• On average respondents felt more positive about the  “Real Estate Legal” and “Real Estate Finance” specialisms with other specialisms (Asset Management and Corporate Real Estate) being slightly, although not markedly positive.
• Comments from respondents included:
  • “Expect marked regional variations in fortunes”
  • “A lot of conflicting signs – so maybe we are at a turning point”
  • “I expect a slow recovery through 2010/11 but that won’t feed through into much better employment prospects”
  • “Expect employers to be cautious in their employment decisions”

Tweet This

I hope that you find this highly personal digest of the week’s commercial property stories useful and you can form your own opinion as to how things look for 2010.  Happy Christmas and New Year to all our readers!

First some Christmas cheer from ING Real Estate

Parts of Continental Europe are close behind the UK and some Asian countries that are poised to lead the way to recovery in commercial real estate, according to ING Real Estate Investment Management’s annual global research study.  The study, which was presented to journalists in London this week, indicates that large flows of capital into commercial real estate globally, attracted by depressed pricing, are helping to stabilise major markets.  Tim Bellman, global head of research and strategy at ING REIM said: ‘In the UK and in key markets in Asia, excluding Japan, the point of take-off seems to have been reached.’

IPD Reports large (percentage) improvement

UK commercial property values rose by the largest monthly figure in 15 years, according to November’s IPD UK Monthly Index. Capital growth was 2.4% last month, bringing the compounded growth since the market began ascending in August to 5.4%. Year-to-date capital growth is now -8.4%, while steady income returns leave the total return for the 11 months of 2009 at -1.4%. The dramatic reversal of fortunes (OK let’s not get carried away let’s remember it’s a percentage change from a very low base figure) in the UK commercial property markets has been predicated on softening rental pressure and returning yield compression.

Commercialisation  of public sector

Moves to create multibillion-pound public sector outsourcing and property companies, which could eventually be floated, are being considered by Whitehall. Gerry Grimstone, the businessman charged by the Treasury with finding ways to raise cash from public sector assets, has launched a review to consider how the government could set up companies along the lines of Capita and Serco, which handle huge government information technology and service contracts.  So far the work done under the government’s review of its asset portfolio has focused on existing businesses that could be sold, including the Tote, the Dartford Crossing and the High Speed 1 rail line. But Mr Grimstone, the chairman of Standard Life and Candover who was Margaret Thatcher’s privatisation guru, is looking to go further and group activities from across a range of departments, such as IT functions, data processing and operating centres, into commercial entities.  He said there was no reason such activities had to be done in the “vertical silos” of individual departments, and pointed out that the likes of Capita and Serco had already capitalised by taking parts of business from across government and combining them into “horizontal” businesses.  He denied it was “far-fetched” that such public sector businesses could eventually compete with the existing service companies.

DTZ sees a new “wall of money” looking for a home in UK real estate

Tweet This

Resignation from ING Real Estate Investment Management

ING Real Estate Investment Management has announced that Nick Cooper, founder and CEO of its multi-manager business, ING Real Estate Select, has resigned and will leave the business at the end of December 2009. Announcing his resignation, Nick said: “I have had an exciting and challenging time with ING and have thoroughly enjoyed growing the multi-manager business into one of the most successful global businesses in this arena. The recent Head Office decision to re-locate the global Select business to the Netherlands does not, however, fit into my life or career plans at this time and I have therefore declined ING Real Estate’s offer to remain part of the business.”

Good Time to Invest in Commercial Property?

Property markets in Europe have reached a turning point as the performance outlook continues to recover, largely driven by improving capital market conditions, and with the UK setting the trend for the rest of Europe, according to Aberdeen Property Investors (API).  According to Aberdeen Property Investors (API), property looks cheap now, from an historic perspective and relative to other asset classes.  Gert-Jan Kapiteyn, Research & Strategy director for Western Europe, said: ‘The timing for investors to increase exposure to European property is actually very good now. However, investors will have to rely less on leverage as a driver of performance in future, as banks will be less willing and able to provide cheap finance. Less gearing in property investment products will also help institutional investors, of whom many are looking for the liability hedging qualities of property investing: high income returns, return stability, inflation protection and portfolio diversification.’

But a lot of Tricky Property Debt!

The value of UK commercial real estate debt in default or in breach of key lending agreements more than doubled to about £30 bn (EUR 33..15 bn) in the first six months of the year. Banks have also extended or refinanced an extra £16bn in the first half of the year, rolling over maturing debt that could not be paid back by cash-strapped borrowers or restructuring loans when breaches were threatened owing to the steep fall in values.  According to De Montfort University, which compiles the most comprehensive study of the sector, the real estate sector accounts for £224 bn of outstanding debt. A survey by the university reveals that £43 bn of loans are due to mature this year and £32 bn are due for repayment in each of the next two years.

Not Much Investment in Property Non-Listed Funds

Five equity investments totalling a mere EUR 75 mln were made into non-listed property fund of funds in the first nine months of 2009, according to the latest Fund of Funds survey by Inrev, the organisation for the non-listed real estate sector. This compares with 97 investments totalling EUR 2.2 bn in 2007. In 2008, 50 investments were made totalling EUR 548 mln.  While funds of funds may have seen a year of low investment activity, they are now poised to target opportunities in the secondary market, the survey concluded. Two thirds of respondents said the secondary market was now a more important part of their investment strategy. All respondents said this was driven by opportunities to enter funds at advantageous prices.

A Bit of Christmas Cheer from JLL

Jones Lang LaSalle has said it expects total direct investment in commercial real estate in the UK to total around £22 – £23 bn (EUR 24-25 bn) by the end of 2009. This is comparable with turnover in 2001 and would represent a 10% increase on last year’s total of £21 bn.  Julian Stocks, head of Capital Markets England, Jones Lang LaSalle said: ‘2009 has been a year of two halves. The first six months of the year were characterised by low investment volumes, falling prices and worsening occupational markets. However, over the second half of the year investor sentiment dramatically changed and a confidence formed over the summer resulting in demand for stock outstripping supply. This wave of optimism has resulted in higher prices and rising activity.’

Tweet This

Anyway here goes with my completely personal roundup of the 5 stories in commercial property & construction that particularly caught my attention this week.

Schroders predict recovery a bit “V” a bit “W”

Schroders Property has predicted a double dip for UK commercial property in 2011 after double-digit growth next year. At the Schroders Property Media Roundtable briefing this week the fund manager forecast a spike in total returns of 18% in 2010 followed by a decline in 2011 of -2%.  William Hill, head of property atSchroders , said the recovery will be volatile and would be “a bit of V and a bit of W”. “A change in the flow of capital will take the market up and down but there is no way we will return to 61 quarters of successive growth” said Hill  (that’s probably no surprise).  He said the current momentum in the market will drive up prices and a combination of factors — including the UK’s slow economic recovery, the volume of debt that needs refinancing and the likelihood of distressed sales by banks — will result in a correction.

Conservatives and planning for major instrastructure projects

The Conservative Party has expanded on how it would speed up the planning process and work its pledge to abolish the newly introduced Infrastructure and Planning Committee (IPC).  Speaking in advance of the publication of the party’s Green Paper on planning to the Bow Group last night, Shadow Local Government Minister, Bob Neill, said that a Conservative government would turn round the “glacially slow” pace of planning decisions and return the decision making process to the local communities. Branding IPC as “an affront to democracy” and the IPC Commissioners as “unaccountable quangocrats”, Neill repeated his pledge that the Conservatives would abolish IPC and return the function to the planning inspectorate.  Under his plans, the Secretary of State would then have the final sign off, and would be subject to a statutory time limit to come to their decision in order to ensure they did not drag on.

Low carbon 2012 Olympics?

The commitment that London 2012 would be a low carbon games  is proving tricky to honour. According to a report to be published this week by the Olympic Delivery Authority, the games will produce about 2m tonnes of carbon dioxide — better, it will claim, than the 3.4m tonnes that would have been produced without the measures taken to cut emissions. Almost all the carbon dioxide, the authority says, will come from the construction of the games’ facilities. To put that into proportion, the UK produced 550m tonnes of carbon dioxide last year.

CBRE: Prime retail rents stabilise

Prime retail rents have begun to stabilise in many markets across the world in the third quarter of 2009, according to CB Richard Ellis.  CBRE’s latest Global MarketView shows economic and retail indicators have started to show signs of greater stability and retailer confidence.  Retail rents globally fell by an average of 1% from the second quarter to the third quarter of 2009.  New York’s reign as the world’s most expensive retail market continued in the third quarter despite a 25% rental decline over the past 12 months.

Tweet This

Land Securities sees reasons for some optimism.

A recovery in commercial property values will be characterised by “ripples rather than pure straight-line growth”, the head of Britain’s biggest property group said this week.   Francis Salway, chief executive of Land Securities, said that slight fluctuations would be part of an overall rise in the values of shops, offices and warehouses over the next five years from the low in July 2009. His comments will soothe investors, who had begun to fear that a mini “bubble” in values over the past few months could burst and send values down again. On the back of signs that London’s West End is likely to recover first, Land Securities said that it had committed to starting work on three new schemes with a combined total development cost of £700 million: Park House W1; Selborne House SW1; and Wellington House SW1. However, its approach to other acquistions and development is “to be patient and wait for the right opportunities”. Mr Salway said that he expected a “broader range of opportunities to emerge once banks begin to take action on their property portfolio loans”.

CBRE report that sale & leasebacks..are back

Corporate sale-and-leaseback transactions have maintained a prominent role in the European property investment market despite the downturn, according to a new report by CB Richard Ellis.  John Wilson, head of Corporate Strategies within CBRE’s Global Corporate Services business, said: ‘The sale-and-leaseback market has continued to prosper despite investor caution because these transactions create long and well-secured income streams for the purchaser and often involve prime assets – precisely the kind of opportunities investors are looking for at the moment. ‘What we have also noticed is that these transactions are expanding across more countries and business sectors. We were working on around EUR 1.5 bn of deals in this area in mid-2008, and this has climbed to around EUR 3 bn this year,’ he said.

A move from JLL to Cushmans

Tweet This