Property Investment for 2010

Property investment turnover in Central and Eastern Europe (CEE) surged more than 300 percent in the second half of 2009 from the first half, as pricing began to stabilise and confidence in local economies recovered, a report showed on Thursday.

The huge rise in commercial property sales volume brings total 2009 turnover in the region to 2.5 billion euros ($3.55 billion), broker CB Richard Ellis (CBRE) said, noting continued preference for "defensive properties in core locations".

Despite higher levels of activity in the second half of the year, CBRE described the 2009 market as "quiet" compared with recent years. Investment turnover in 2009 finished 75 percent lower than in 2008.

Central Europe accounted for 56 percent of CEE turnover in 2009, compared with 37 percent in 2008. Investors sought the relative security of assets in Central European capital city markets such as Prague, Warsaw and Budapest, which increased their share of total CEE turnover to 34 percent in 2009 from 21 percent in 2008.

Southeastern Europe's share of turnover fell more than half to 12 percent in 2009, while Eastern Europe's share dipped to 32 percent from 37 percent in 2009.Offices received the largest share of investor attention for most of 2009, grabbing 44 percent of the market versus 31 percent for retail and 12 percent for industrial property. Hotels accounted for 8 percent of transactions.

Both prime yields and prime capital values were relatively stable in CEE in the latter part of 2009, CBRE said, with more evidence of transactions closing at or near quoted prime yields in recent months.

"The fact that prime yields fell in certain Western European markets in H2 2009 has bolstered belief that prime yields have reached highs in most CEE markets," Pavel Schanka, Director of CEE Capital Markets said.

"Despite some promising signs at the prime end of the market, value declines are still a reality at this point in non-prime segments in most CEE property investment markets, and are likely to remain so in 2010."

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 not 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.

The United States remained the country selected as the "most stable and secure real estate investment environment," although only 44 percent of the respondents said so. It was the first time the United State fell below 50 percent in the survey. That's down from 53 percent in 2008 and 57 percent in 2007.Germany was second with 21 percent.

"The financial crisis of the past year has obviously affected investors' perceptions of U.S. real estate as 'stable and secure,'" Fetgatter said. "However, it is also apparent that opportunity lies within this instability since the U.S., along with the UK, show substantially higher scoring for expected capital appreciation."

Fifty-one percent of respondents said the United States provided the best opportunity for price appreciation. According to various research firms, prices have fallen from their 2007 peaks by more than 40 percent.

Respondents saw the UK as the second-best country for capital appreciation, and China came in third.Two-third of the respondents said they planned to raise their U.S. investment in 2010, increasing equity investment by 62 percent and debt investment by 83 percent over 2009 levels.

Meanwhile, The Real Estate Round Table, which represents U.S. commercial real estate property owners, investors and professionals has been lobbying Congress to change the rules that subject some foreign owners to double taxation.

As for global investment, respondents said this year's equity investment would be 46 percent higher than in 2009 but 20 percent lower for debt investment.Among U.S. cities respondents chose Washington and New York, with San Francisco running a distant third. Boston made significant headway into fourth place, with Los Angeles falling one spot into fifth place.

Survey respondents said they favored investing in multifamily real estate as their preferred property type followed by office, industrial, retail and hotel properties trailing significantly.

"More notably, the gap between the top preference and the least-favored product, hotels, has not been this wide since 2000," Fetgatter said.
Half the survey respondents said they expect the U.S. commercial real estate market recovery by or before the fourth quarter, six months later than they projected in AFIRE's mid-year 2009 survey.

About a third of those surveyed said they were more optimistic about the U.S. real estate market than they were in June; 63 percent say their perspective has not changed and 6 percent say they are more pessimistic.

Respondents said their top favorite emerging markets are China, Brazil, India, Mexico, and Turkey. Brazil and India, which were the first- and second-ranked emerging markets in the 2009 survey, each receive half the votes of China.

London’s West End regained its ranking as the world’s most expensive office market in dollar terms last year as rents stabilized in the district while falling elsewhere, according to DTZ Holdings Plc.

The West End overtook Tokyo, Paris, Dubai and Hong Kong to secure the top spot, which it will hold until at least 2013, the London-based property adviser said in a report published today. The West End had been the costliest business district since at least 2002 until 2008, when it was placed fifth. Last year it cost $21,420 in rent, charges and taxes to provide office space for one worker in the district.

The global financial crisis has cut office rents worldwide, with demand for space waning as companies fired workers to save cash. That has reduced total occupancy costs in cities such as Singapore, where the decline coincided with a surge of new office space.

“With falling rents and more supply to choose from, the office market will offer tenants real value for money in the current climate,” Karine Woodford, head of real estate strategy at DTZ, said in the report. “We may see multinational companies taking advantage of this shift and relocating their operations accordingly.”

The cost of renting office space in Tokyo fell 8 percent to $20,960 last year, while costs for Midtown New York, Paris, Dubai and Hong Kong all fell at least 20 percent in dollar terms, DTZ said.

Costs in the U.K. capital’s main financial district, known as the City of London, are expected to rise an annual 6.7 percent in the five years to 2013, second to Hong Kong, where spending will advance 8.8 percent a year.

The five most expensive office locations in the world last year were the West End, central Tokyo, Washington, Hong Kong and Geneva, according to the report. The pound’s strength against the dollar contributed to the West End’s return to the top of the ranking.