Sweetchilli - Property News & Market Reports

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

written by Simon Page \\ tags: 2008, Manchester, office, savills, survey

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

written by Simon Page \\ tags: 2008, activity, commercial, Credit crunch, development, Market Reports, news, property, savills

• 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

written by Simon Page

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?

written by Simon Page

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

written by Simon Page

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

written by Simon Page

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

written by Simon Page

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

written by Simon Page

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

written by Simon Page

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

written by Simon Page

No-one can deny that the UK’s housing market is currently enduring a period of value correction.Throughout this bulletin, we look at how the prime markets in London and across the UK have reacted to date and consider the timings and strength of their recovery. History shows that the prime markets behave differently to mainstream property (they are usually either more vulnerable or more resilient).  But, the key symptom of the current credit crisis has been the simultaneous impact on all sectors of the market (albeit at varying degrees).  The increasingly pessimistic economic outlook leads us to believe that weak market conditions, characterised by low turnover, will persist for at least the next 18 months. 

Prime Central London

“Values are falling more quickly in prime London than in other markets and we expect them to end the year down -15% and, by the end of 2009, we expect them to have lost 25% of their 2007 value.”  Reduced earnings and job security expectations amongst City buyers has curtailed the demand for property in prime central London.  The more pessimistic outlook over the last couple of months has fed quickly into values. Over the second quarter of2008, our index of capital values in prime central London recorded its lowest quarterly figure since the index began with values falling by -5.5%. Values are now -9% lower than their peak in the late summer of 2007.

The hardest hit parts of prime central London have been in the West (Kensington, Notting Hill and Holland Park). This area saw the biggest price rises in 2007but has seen falls of -9.3% over the second quarter of2008.  This takes values down -15% since their peak in 2007.  This market has been most seriously affected by the financial turmoil, uncertainty over future bonus payouts and fall off in demand from international buyers. 

Although the new legislation affecting the taxation of non-domiciles in the UK was less draconian than initially  feared, it did have a knock-on effect on international demand in central London during the first half of 2008.  This was particularly evident in the mid to upper prime price bands.  The only market which has so far defied the downturn is the ‘uber-prime’sector(properties over £10m) where values continue to rise,albeit more slowly than the unprecedented rates seen in 2006 and 2007.  “In this price band, demand for the most exceptional properties continues to outstrip supply resulting in prices rising by +1.2% in Q208 taking year-on-year growth to +11.5%.”

Read the full Savills article below

UK Prime Residential Market - Summer 08 PDF

written by Simon Page

Commercial development activity falls at the sharpest rate in over five years.

• Over five times as many commercial developers (40%) noted a reduction in total activity as those that reported a rise (7%) in June.
• The resultant net balance  –  the Total Commercial Development Activity Index – posted -32.4% in June, down from -19.7% one month earlier. The figure pointed to a sharp fall in commercial development activity and was the lowest reading in the survey history.
• Survey respondents signalled that deteriorating levels of demand, resulting from uncertainty and poor credit availability had caused June’s steep decline in activity.

FUTURE EXPECTATIONS

• Companies in the UK commercial property sector were extremely pessimistic in June. Almost half of all respondents believed that their activity levels would decline over the coming three months, against under 8% that anticipated an increase.
• Although negative sentiment was broad-based across all sectors, it was most apparent in the Retail & Leisure sector which posted a net-balance of -43.4%.
•  Panellists explained that the current unfavourable economic situation was the main basis for their pessimism. A number also reported that they lacked confidence in the government’s ability to rectify the situation in the foreseeable future.

COMMERCIAL ACTIVITY & THE UK ECONOMY

• To the right is a comparison of the three-month trend in the survey’s Total Commercial Development Activity Index against the UK PMI Composite Output Index, a monthly indicator of overall activity in the UK economy.
• The comparison indicates a close relationship between the performance of the UK commercial property sector and the wider economy over the past five years.
• The chart shows that the recent downturn in commercial development has been accompanied by a slowdown in the UK economy. June PMI figures indicated a drop in total UK private sector output for the second month in a row, and at an accelerated pace.

Full Savills article below:

Commercial Development Activity - Jul 08 PDF

written by Simon Page