MIPIM ( and the small matter of Drivers Jonas)

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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

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MIPIM is such a large international event that even its level of registrations weeks ahead of the actual event might be viewed as some indicator of the health of the property market. So it was interesting to discover this week that some 2,300 international investors have registered for the 21st MIPIM (Cannes from March 16-19), a 12% increase on the same period in 2009.  The organisers are probably quite rightly seeing this as a sign of improved confidence in the real estate market and economic recovery.

Ernst & Young – it’s unsustainable

UK commercial property prices rose 3% in December, their highest monthly rise in 23 years, but the chances of a sustained recovery in 2010 and beyond are unlikely, according to the Ernst & Young ITEM Club. The upturn has been primarily driven by market sentiment, where investors had decided the bottom of the market had been reached. Furthermore, the flood of extra cash and liquidity as a result of the Bank of England’s Quantitative Easing (QE) has helped to fund transactions, says the Ernst & Young ITEM Club.  With QE likely to come to an end soon, coupled with the risk to banks of more property companies defaulting on their loans, the recent rise in activity is likely to fall away. The report also says the recovery could easily become destabilised because there is little sign of a pickup in market fundamentals – there were further upward movements in vacancy rates and downward shifts in rents throughout last year and this trend looks set to continue. Dean Hodcroft, EMEIA head of real estate at Ernst & Young, explains, ‘Welcome though the bounce of activity has been, its sustainability is far from certain. The upturn has largely been based on investors deciding the bottom of the market had been reached and the massive decline in prices over the past couple of years resulting in attractive buying opportunities.’

BDO agree

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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.

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Reuters reported that “Drivers Jonas, which was established in 1725, will move its 650 employees to Deloitte’s much smaller real estate team by March, Deloitte said in a statement on Friday. Under the terms of the deal, Nick Shepherd, managing partner of Drivers Jonas, will become managing partner of the enlarged real estate group. It will have around 700 staff, annual revenues of more than 110 million pounds and will trade as Drivers Jonas Deloitte. A spokesman for Deloitte said no capital was changing hands between the two parties and there would be no job losses following the merger.”

Doubtless the details will emerge during the coming days, but I have been intrigued, if the reports are correct, to learn that the new entity will trade as “Drivers Jonas Deloitte” – ie the Drivers Jonas name being at the fore and it would suggest more of a merger than an acquisition.  The “Big 4″ have always guarded their position towards the top of the market very aggressively and it will be interesting to see where the new entity positions itself.

We’ll be watching this space!

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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

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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

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