Not open season for investors, says DTZ, with no near term respite from falling values and funding constraints
London City offices – only office market globally offering fair value as all others fail to offer attractive investment destinations at current values, advises DTZ Research
Globally, office returns to be -20% through 2009, with property prices stabilising only during 2010
Global cross border investment fell by 58%
Value of UK invested stock fell by 10% to 586bn in 2008 for the first time on record
The period between 2008 and 2010 will be seen as producing the worst cumulative returns for UK property since records began in 1921
According to the global real estate advisers, the prime London City office market is the only key office market globally to offer investors attractive returns at current values. DTZ’s global analysis has identified markets at different positions in relation to their fair value. Looking specifically at the prime office market DTZ believes that although currently not at fair value, London West-End, Madrid, Paris and Sydney will reach fair value in 2009. Meanwhile Frankfurt, New York, Shanghai and Tokyo will not represent attractive investment destinations until 2010.
Tony McGough, Global Head of Forecasting at DTZ, comments: “While deals are clearly continuing to happen across all markets, they currently tend to represent very selective opportunities, often driven by distressed seller situations or on the back of very high-quality tenants and long-term leases. Our analysis indicates that markets typically reach fair value, and are then able to represent a broader base of opportunities, before they reach the bottom. This full open \"hunting season\" for investors is not yet underway, with the majority of markets still needing to undergo further pain before they reach fair value. This picture will start changing in the second half of this year, with markets gradually becoming attractive, though some key markets will only reach fair value in 2010.\"
DTZ forecasts that globally, total office returns will be around -20% in 2009 and be zero or slightly positive next year, notching up to above 10% from 2011 onwards. While yields are beginning to stabilise in some of the markets, the softening of the economy will place rents under pressures across all markets covered by DTZ.
In the UK, prime rents in the City and West End of London have already fallen by 31% and 23% respectively since the peak, and further falls in the City of around 14%, and 20% in the West End, can be expected over the course of the next couple of years. Peak to trough, DTZ expects prime office rents in London to fall by 40%. With cumulative total returns forecasted to reach -46% in real terms in the period between 2008 and 2010, this period will be seen as producing the worst cumulative returns for UK property since records began in 1921.
The Money into Property report which analyses 38 countries across Europe, Asia Pacific and the Americas, has a number of other key findings and it reveals that in 2008 – and for the first time on record – the value of UK invested stock fell by 10% to 586bn. It also shows that, once again, for the first time on record, the value of the global real estate invested stock fell, by 4.4%, with global transaction volumes down by 85% since their peak in Q3 2007, to US$30bn in Q1 2009.
The report goes on to show that cross border flows of capital have fallen by 58% over the past year, from $211bn to 89bn. The Middle East is the only region which has increased its investment into other regions (by 2%) while all other regions saw a reduction in cross border investment of between 50% and 80%. EU inward investment has almost halved from US$95.1bn to US$48.4 in the past year, while flows into Europe from the US are down 80% and from the US into Asia Pacific by 71%.
DTZ’s Investor Intentions Survey reveals that 83% of investors surveyed are expecting global transaction volumes to decline further in 2009 from their already depressed 2008 levels.
Investors’ expectations are reinforced by DTZ’s Lender Survey which indicates that lending conditions will continue to tighten over the next year. The majority (59%) of lenders expecting conditions to improve only in 2011 at the earliest.
Tony McGough, Global Head of Forecasting at DTZ, comments: \"While we will start to see value returning to the market, funding remains a concern, and may become a bottleneck for the recovery of activity in the commercial property markets worldwide.\"
Evelina Necula
Head of Marketing Department
Globally, office returns to be -20% through 2009, with property prices stabilising only during 2010
Global cross border investment fell by 58%
Value of UK invested stock fell by 10% to 586bn in 2008 for the first time on record
The period between 2008 and 2010 will be seen as producing the worst cumulative returns for UK property since records began in 1921
According to the global real estate advisers, the prime London City office market is the only key office market globally to offer investors attractive returns at current values. DTZ’s global analysis has identified markets at different positions in relation to their fair value. Looking specifically at the prime office market DTZ believes that although currently not at fair value, London West-End, Madrid, Paris and Sydney will reach fair value in 2009. Meanwhile Frankfurt, New York, Shanghai and Tokyo will not represent attractive investment destinations until 2010.
Tony McGough, Global Head of Forecasting at DTZ, comments: “While deals are clearly continuing to happen across all markets, they currently tend to represent very selective opportunities, often driven by distressed seller situations or on the back of very high-quality tenants and long-term leases. Our analysis indicates that markets typically reach fair value, and are then able to represent a broader base of opportunities, before they reach the bottom. This full open \"hunting season\" for investors is not yet underway, with the majority of markets still needing to undergo further pain before they reach fair value. This picture will start changing in the second half of this year, with markets gradually becoming attractive, though some key markets will only reach fair value in 2010.\"
DTZ forecasts that globally, total office returns will be around -20% in 2009 and be zero or slightly positive next year, notching up to above 10% from 2011 onwards. While yields are beginning to stabilise in some of the markets, the softening of the economy will place rents under pressures across all markets covered by DTZ.
In the UK, prime rents in the City and West End of London have already fallen by 31% and 23% respectively since the peak, and further falls in the City of around 14%, and 20% in the West End, can be expected over the course of the next couple of years. Peak to trough, DTZ expects prime office rents in London to fall by 40%. With cumulative total returns forecasted to reach -46% in real terms in the period between 2008 and 2010, this period will be seen as producing the worst cumulative returns for UK property since records began in 1921.
The Money into Property report which analyses 38 countries across Europe, Asia Pacific and the Americas, has a number of other key findings and it reveals that in 2008 – and for the first time on record – the value of UK invested stock fell by 10% to 586bn. It also shows that, once again, for the first time on record, the value of the global real estate invested stock fell, by 4.4%, with global transaction volumes down by 85% since their peak in Q3 2007, to US$30bn in Q1 2009.
The report goes on to show that cross border flows of capital have fallen by 58% over the past year, from $211bn to 89bn. The Middle East is the only region which has increased its investment into other regions (by 2%) while all other regions saw a reduction in cross border investment of between 50% and 80%. EU inward investment has almost halved from US$95.1bn to US$48.4 in the past year, while flows into Europe from the US are down 80% and from the US into Asia Pacific by 71%.
DTZ’s Investor Intentions Survey reveals that 83% of investors surveyed are expecting global transaction volumes to decline further in 2009 from their already depressed 2008 levels.
Investors’ expectations are reinforced by DTZ’s Lender Survey which indicates that lending conditions will continue to tighten over the next year. The majority (59%) of lenders expecting conditions to improve only in 2011 at the earliest.
Tony McGough, Global Head of Forecasting at DTZ, comments: \"While we will start to see value returning to the market, funding remains a concern, and may become a bottleneck for the recovery of activity in the commercial property markets worldwide.\"
Evelina Necula
Head of Marketing Department
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