The overall vacancy rate in Manchester will begin to decline from 2009, contributing to gentle upward rental growth on the best space.

• When analysing deals over 1,000 sq ft, half year take-up figures for 2008 were 432,328 sq ft, which is 29% up on the same time last year.
• Around 50% of the 185,000 sq ft requirements circling the market are public sector driven.
• Due to impressive take-up figures in the second quarter and limited development completions coming on stream in Q2, total supply has fallen by3% and now stands at 2 m sq ft.
• The vacancy rate stands at 11.4% (up from 8.9% atthe same time last year).
• Our current forecast for rents is for an average annual growth rate of 2.4% per annum over the period 2008-2012.
• The larger end of the market is holding up well.The most noteworthy being the acquisition of50,000 sq ft by Bank of New York Mellon at Spinningfields.
• Yields in the second quarter of 2008 have continued to move out for both prime and secondary city centre offices.

Read full Savills report here

Commercial property downturn deepened in September as global credit crisis continued to affect funding.

• September data pointed to another difficult month for the commercial property sector, with development activity hit by reduced bank lending and the weak economic outlook.
• Just 7% of survey respondents reported a rise in activity, compared to 48% that indicated a fall. At -40.7%, the resultant net balance – the Total Commercial Development Activity Index – was the lowest since the survey began in March 2003.
• The latest survey pointed to particular weakness in the office development sector, reflecting concerns about tenant demand and deteriorating conditions in the wider UK economy.

Future Expectations

• Business sentiment dropped to a new series record low in September, as developers anticipate that recent global financial market turmoil will further restrict credit availability and reduce tenant demand.
• Data indicated that firms were most pessimistic about the prospects for office and retail & leisure development projects.
• The three-month outlook for industrial/warehouse development improved slightly from August’s low, but remained well inside negative territory.

Read Savills Report here

Some sectors have seen a 50 basis point rise in September

• The consistent economic bad news during the past few months has dampened real estate prices across the globe.  The recent movement in yields supports the notion that the relative pause in August was not a positive turning point.
• There is evidence that some investment deals are being pulled due to the lack of supporting debt.This is despite many investors having a significant level of equity, with the debt required well below average.
• For UK equivalent yields, we have compared the‘end of boom’turning points of early-1989 and end-2006.  From both points, the yield shift two years on has moved in a remarkably similar way, suggesting that valuers are behaving the same.
• The IPD All Property total return in August recorded a 17% fall over the preceding 12 months.  Since the end of 2007, total returns have fallen by 8%.This suggests that 2008 will show a 10-11% fall in total returns, the worst UK out-turn since 1974.

Property yields still rising; interbank lending remains volatile

• When property is out of favour as an asset class,such as during 2002 and 2003, the premium can reach 400 basis points.
• We expect the premium to drift out to 300 basis points during 2009.  This also supports the 8% ‘all property’equivalent yield discussed in the first section.
• The interbank market remains very nervous,reflected in the recent volatility of Libor margin above the base rate.  Despite liquidity being pumped into the system, fear remains about banks’solvency and need for banks to re-capitalise.  The property industry needs confidence to return to enable a more orderly property market.

Scale of investment downturn evident

• At some point during the third quarter this year, the level of UK property investment passed that seen during just the first quarter of 2007. Volumes are rock bottom as a “wait and see” approach is firmly in place due to the rising property yields.
• We estimate that UK investment volumes will be around £17.8 billion this year.  This would represent only a third of the investment activity seen during 2007.
• Overseas investors are the most significant buyers in 2007 and 2008.  In fact, over the past eight years, this type of buyer has been a net investor.UK institutions are the most significant sellers -redemption levels within the retail funds are partly responsible.  UK institutions have accounted for around 47% of sales so far this year.

Confidence is key

• The ‘will they, won’t they’debate of the $700 billion liquidity injection by the US Government has dominated the news.  The speculation, rejection and eventual acceptance have contributed to significant volatility in the global markets.
• The credit crisis, inflationary influences and the unprecedented level of intervention and failure of financial institutions is culminating into a ‘feeling’of a full blown recessionary environment.  However,consumer confidence improved during the past couple of months despite retreating house prices.
• Despite the financial meltdown, economists’models are predicting a growing UK economy in 2009.This supports rental growth and therefore income return for property investors.  An emergency cut in base rates by six central banks is certainly a positive step, but the effect, as yet, is unknown.

read more at www.savills.com

• As the table shows, prime yields stayed at their July2008 level in August, with the expectation that for the majority of the sectors there is further softening to come.
• The lack of movement in August is more a reflection of lack of activity in what was a very quiet month, than any change in investor sentiment.
• IPD’s average yield measures continue to lag the market, though the trend is still outward.  As at the end of July 2008 the average initial yield stood at5.77% and the average equivalent yield was6.94%.
• It is worth noting that according to IPD, rental growth slowed sharply in July, pulling the annual All Property total return down to -16.12%.

Full Market in minutes Savills PDF below

Market in minutes August 2008 PDF

James Lapushner, Managing Director - Morgan Stanley Merchant Banking, Frankfurt say: 

Attached is a research piece prepared by Morgan Stanley that reviews the economic stability of the top industrial countries - it is interesting to see how Germany continues to outperform the rest of the industrialized world economies including the USA, Canada, France and the UK.  Not only, does Germany continue to excel in GDP growth, but German relative unit labor costs fell by 15% since 1999 (page 5) due to massive corporate restructurings during the German recession of 2001-2006.  Even more interesting is that Germany continues to control inflation (page 6) and has one of the best global current account balances (page 22).  In addition, German unemployment dipped more than expected in August 2008 by a decrease of 40,000 and pay increased by 4.6% in the first half of this year on the back of strong labour performance wage deals.

Consequently, the positive influences of the economy and the lack of supply of new space over the last seven years (page 16) have translated into strong rental growth in the last 18 months and even more recently in the last 3 months.  We have seen construction inflation of 25% over the last two years and are expecting further construction inflation of 10% this year.  Accordingly, stronger than expected construction inflation combined with tougher lending standards will cause some of the lowest construction levels in Germany in the last 20 years.

Here is the Great news: In July, we executed over 50,000 square meters(525,000 square feet) of leases in Germany.  In Berlin we recently executed three leases with each lease being over 1,000 square meters and for rents of €26/sqm/month, €28/sqm/month and €33/sqm/month.  Each lease was (i) longer than 5 years, (ii) provided incentives that were lower than market standards, and (iii) set a new top rent in Berlin.  Accordingly, we also just signed 4 new leases in Hamburg for rents of €25.50/sqm/month, €27.20/sqm/month, €30/sqm/month and €32/sqm/month under similar terms as the Berlin leases.  Once again, each lease set a new peak rent in Hamburg.  We have also had similar successes in the remaining top 5 office markets.

Below is the Morgan Stanley market report

European Economics A Shift in the Growth Landscape?

Economy: The federal capital of Berlin, with its 3.4 million inhabitants, is the economic centre of eastern Germany. Berlin’s economic structure is characterised by, amongst other things, its status as the seat of government, within whose area the representative offices of embassies, associations and companies have been established in the recent past. Moreover, Berlin has increasingly been able to establish itself in the past few years as an attractive location for research intensive and innovative service industries. Berlin’s economy is in robust shape, despite the tense financial economic environment, according to an assessment by the InvestitionsbankBerlin. The economic cycle forecast is somewhat troubled, but an increase in the GDP growth rate by 1.3% this year still seems realistic. This estimate is also supported by the Business Climate Indicator by the Berlin Chamber of Industry and Commerce.In fact, at 119.4 points at the middle of the year, the indicator exhibited a significantly lower value than at the beginning of the year; nevertheless the business climate is assessed as positive by the Berlin companies who were questioned. The number of employees liable to pay social insurance contributions rose in Berlin at an above average annual rate, to 2.8% (nationally: 2.3%).

Office market overview: The Berlin office market appeared stable in the first half-year compared to the same period in the previous year. Office space take-up of around 200,700 sq m was achieved without any large volume transactions and a comparatively low proportion of owner-occupiers, of around 3%. The vacancy level reduced by 1% and fell to approx. 1,650,800 sq m. The prime rent remained constant at €22.00 /sq m/month compared to the same period last year. In the first half of the year, almost 51,500 sq m of office space was completed on the Berlin office market. Of these, the proportion of speculative completions was around 13%.

Read the full CBRE report below:

Berlin Office Market Report 2008 PDF

A number of office and industrial property markets reported a slowing down in leasing transactions in the first half of 2008, triggered by a combination of the credit crunch, weakening global economy and a lack of positive occupier sentiment.Very limited growth registered in global industrial occupation costs, which barely rose by 1.0%. Slightly stronger growth of 4.7% seen in the Asia Pacific region, followed by Europe at 1.5%, whilst North America fell by 2.1%.Global office occupation costs rose by 3.2% on average per city. Growth was slightly stronger across the Asia Pacific region at 3.9% on average, followed by Europe at 3.1% and 2.8% in North America.

Read the full King Sturge article below:

Global Industrial and Office Rents Survey 2008 PDF

The overall vacancy rate in Manchester will begin to decline from 2009, contributing to gentle upward rental growth on the best space.

• When analysing deals over 1,000 sq ft, half year take-up figures for 2008 were 432,328 sq ft, which is 29% up on the same time last year.
• Around 50% of the 185,000 sq ft requirements circling the market are public sector driven.
• Due to impressive take-up figures in the second quarter and limited development completions coming on stream in Q2, total supply has fallen by 3% and now stands at 2 m sq ft.
• The vacancy rate stands at 11.4% (up from 8.9% at the same time last year).
• Our current forecast for rents is for an average annual growth rate of 2.4% per annum over the period 2008-2012.
• The larger end of the market is holding up well.The most noteworthy being the acquisition of50,000 sq ft by Bank of New York Mellon at Spinningfields.
• Yields in the second quarter of 2008 have continued to move out for both prime and secondary city centre offices.

Read the full Savills articles below:

Manchester Office Property Supply and Development Survey - Autumn 2008 PDF

This document is a detailed report of Turkey and covers Economy, Office Market, Industrial Market, Retail Market, Hotel Market and Residential Market:

Economic Overview: From March until august 2008, turkey’s economy suffered from a period of instability due to the negative side-effects of political un-certainty. During this period, the state pros-ecutor filed a lawsuit to shut down the ruling Justice and Development Party (aK Party) and the Constitutional Court started to examine the case. in addition, and further disabling economic growth, the country experienced delays in the government’s economic reforms, required as part of the european Union’s ac-cession criteria. the timing of the case pushed forward by the state prosecutor to close the ruling aKP coincided with recession concerns in the U.s economy. the day after the state prosecutor filed the lawsuit against the AKP, concerns re-garding economic and political instability led the lira to depreciate by approximately 2.5% and share prices to fall by nearly 7.5% on the ise100 index. During this uncertain period, the compound yield on the benchmark bond, maturing on april 14, 2010, edged up to approximately 22.8%. the closure case also affected the expectations in the market. However by the beginning of the third quarter, the positive expectations of foreign investors regarding the outcome of the closure case, and the pos-sibility that the prime minister would not be banned in the resulting verdict, initiated a re-bound in the Turkish financial markets.

Read the full Colliers International article below:

Market-research-turkey-real-estate-2008 PDF

• Yields in June presented some degree of stability.However, July is painting a different picture. Prime yields are continuing to move out across the board and apart from West End and City Offices,Shopping Centres and Regional Hotels, we expect further yield softening over the next three months.
• Office yields in the City have stabilised in July and even though they rose by 25 basis points in the last month, they are not predicted to soften any further.
• Shopping Centres and stand alone Retail Warehouses have, with a softening of 50 basis points, seen the largest monthly yield movement. 

According to IPD rental value growth is continuing to slow, dropping to a growth of 2.1% in June compared to 2.5% in May.  This in turn has softened average equivalent yields by 16 basis points as opposed to the 9 basis points seen the previous month.

Prime equivalent yields

Commercial Development Activity falls at new survey record pace, led by steep decline in private sector.

• In July, around 40% of commercial developers indicated a reduction in overall activity compared to one month earlier, while just 6.6% reported a rise.development.
• The resultant net balance – the Total Commercial Development Activity Index – fell to -33.8%, from  -32.4% in June. July’s reading was a new survey record low and signalled a sharp reduction of activity.
• Private sector development declined at a far steeper pace than public sector activity in July.
• Anecdotal evidence suggested that the ongoing global credit squeeze and falling economic sentiment were the main factors behind the latest drop in activity.

Read the full Savills article below:

Commercial Development Activity PDF

EUROPE:

In line with the global slow down, the economies of Western Europe are also decelerating. For the moment, their occupier markets remain fairly robust, with healthy take-up in retail and logistics and, to a lesser extent, offices. However, forecasts for future growth are being downgraded and surveys of economic sentiment are now at their lowest level since mid-2005, suggesting future rental growth is set to weaken.

In the investment markets, yields continue to move out, particularly in Spain and Ireland. To date, the correction across Europe has been far less dramatic than that seen in the UK. This is partly due to pricing being less stretched initially, but it also reflects sellers not yet being willing to crystallise lower prices. This, combined with financing being difficult and costly to obtain, has led to a sharp contraction in transaction volumes compared to the same period 12 months ago.Economic forecasts have been downgraded steadily over the past quarter for almost all the major world economies.Policymakers are struggling to steer a course between inflation and economic weakening. US policy makers have sought to focus on defending the economy through aggressive interest rate reductions whereas, in Europe and parts of Asia, the focus has been on controlling inflation by raising interest rates. Linked to this is a general crisis of confidence and desire for risk aversion amongst banks, which is both reducing the availability and increasing the cost of credit. In this environment, both businesses and manufacturers are struggling to grow and, for much of the world, consumer confidence is being undermined by worsening job prospects and falling house prices. Even Asia is feeling the pinch. Confidence in the view that the region had, by virtue of its intrinsic dynamics, gained a measure of immunity from wider economic travails, is fading.

Read the full PRUPIM articles here:

International Real Estate Perspective PDF