This week’s pick of 5 property stories maybe suggests that the UK and London in particular is fairly well placed in terems of the recovery in commercial real estate – at least when considering prime properties (property further down the pecking order is generally being viewed as weaker. So here goes:
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
The final month of 2009 delivered the largest monthly capital growth in Investment Property Databank’s 23-year history at 3.0%, according to IPD’s UK Monthly Index for December. The figure beats the 2.9% delivered exactly 16 years earlier in December 1993 at the end of the last major property recession. The fifth-consecutive monthly gain, which amounted to a compounded growth of 8.8%, was sufficient to lift returns on UK commercial property into positive territory for the calendar year. In the first indication of performance over 2009 as a whole UK commercial property annual total returns on the Monthly Index were 2.2%, while capital growth was -5.6%. The IPD UK Monthly Property Index is based on a sample of 3,368 properties covering £27.7bn at the end of December 2009.
2010: London office rent rises?
London’s office market will see headline rents rise in its City location this year to £56 (EUR 64) per sq ft, and to as much as £98 per sq ft in the West End in 2011. This compares to 2009 levels of £47.50 per sq ft and £88 per sq ft respectively, according to Savills. These increases are due to a decline in availability of new stock as the market moves into a period of record low levels of development completions which will support the investment market in 2010. Savills’ research suggests that amid shortages of new prime stock in the City and West End markets, a flight to refurbishment will be followed by a development bulge.
Sir Fred Goodwin ex of RBS
The papers reported this week that Sir Fred Goodwin has an old friend to thank for his return to the labour force. The former RBS boss is to be an adviser at RMJM, the architectural practice responsible for the Scottish parliament building, which went 10 times over budget. Appointing an accountant turned banker to such a position is unusual. Goodwin will be renewing his working relationship with Sir Fraser Morrison, who is chief executive of RMJM’s North American operations. Morrison’s son, Peter, is overall chief executive of the Edinburgh practice that expanding in Asia. One assumes that Sir Fred is immune to the media jibes flowing from such a link up.
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