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Confidence is slowly returning to the commercial property market on the back of reports from surveyors that the fall in tenant demand for offices and shops has started to slow.

Demand for commercial property still fell in the second quarter of 2009, according to a report from the Royal Institution of Chartered Surveyors on Monday, but the pace of decline slowed markedly. The net balances for new inquiries from tenants and confidence were the least negative since the downturn began late in 2007.

After a two-year slump in capital values, there are expectations that property prices will come under pressure from the fall in rents caused by the shortage of new occupiers.

Tenant demand for offices and shops in the UK has been hard hit by the economic downturn, with few businesses looking to expand or take on new lease liabilities.

The slower decline in tenant demand during the last quarter points towards a mild improvement in the lettings market, particularly in the office sector where the net balance actually turned positive for the first time since the third quarter of 2007.

Even so, Oliver Gilmartin, RICS senior economist, played down hopes for a sustained recovery.

“While tenant demand in some areas improved modestly … the positive move was from extremely low levels,” Mr Gilmartin said.

“It is still unclear whether current activity reflects ongoing rationalisation of space or fresh tenant demand. Furthermore, the rental downturn remains in its infancy with strong levels of surveyor inducements pointing to a challenging lettings market,” he added.

In total, 13 per cent more surveyors reported a fall than a rise in tenant demand compared with 40 per cent in the first quarter. But, in the office sector, 1 per cent more surveyors reported a rise than a fall in tenant demand, a marked change from the negative reading of 37 per cent in the first quarter.

via FT.com / Companies / Property – Outlook brightens for UK commercial property.

Most lenders to the UK’s investment property market will be unable to shrink troublesome loan books for the foreseeable future, despite much of this debt being under water, analysts claim.

Some £50 billion out of £280 million of loans arranged in the markets during the 2004 to 2007 boom are now worth more than the underlying properties, according to property consultants Savills.

‘My guess is that at least 75% of all loans are in breach of at least the LTV loan to value covenant,’ warned William Newsom, head of valuation at Savills UK.

He added that around half of existing lenders also plan to decrease their loans to the sector this year so foreclosing on the debts of property owners may not be an option because the lack of financing makes it difficult to find new buyers. Banks are also reluctant to sell into a falling market.

As an alternative to calling in the debt, most lenders are extending repayment periods, in some cases by as much as eight years, while renegotiating loan terms at higher margins, Newsom said.

He believes that the next five to ten years will be about managing existing loans for the banks who are effectively the new property owners, in partnership with their borrowers.

However banks in Germany and the UK in particular are willing to lend. Of 22 banks willing to originate loans of above £10 million in value, 10 are German lenders and eight are from the UK, including Barclays, Lloyds, and HSBC. Just two German banks, DG Hyp and Eurohypo are willing to make loans of above £100 million pounds.

Mat Oakley, head of commercial property research at Savills, expects UK investment sales for the first six months of 2009 to be higher than in the second half of last year, and reckoned this signals the property market has turned the corner.

While buyers have so far concentrated on top-end buildings with long leases and strong tenants, he expects to see a new wave of risk-loving investors, keen to take advantage of the massive discounts currently available.

‘We will start to see the opportunistic deals coming in, and the best deals will be done before the herd returns in 2010, 2011,’ he said.

via UK investment property market hit by troublesome loans | Europe | News.

The slump across global commercial property markets has accelerated since the turn of the year, with the emerging markets in particular struggling under the combination of capital value and rental falls.

The pace of decline in capital values accelerated in the first quarter, while almost every country in the world is reporting a slide in rents, according to the global property survey from the Royal Institution of Chartered Surveyors, released on Tuesday.

Countries across Europe suffered price falls, with particularly significant pessimism over capital values in France, the Netherlands and the Republic of Ireland.

Surveyors expect little easing in the pace of price declines in these markets. However, there was better sentiment in Spain and the UK, where the extent of the market slump means many hope to see a bottom soon.

The UK, in particular, led the rest of the world when the market peaked in the summer of 2007 and is now showing signs of price stabilisation in certain types of defensive well-let property.

The developed regions leading the property cycle generally saw investment and lettings demand fall at a slower pace. Purchasing activity is expected to rise across western Europe and Asia for the first time in over a year. But Germany remains the outperforming market, with expectations towards property values less pessimistic than elsewhere.

However, the Japanese and US markets continued to deteriorate, with virtually all surveyors reporting falling capital values.

There was a marked downturn in sentiment in many parts of central and eastern Europe, the worst performing emerging market region. This belies hopes property in certain emerging market economies would be decoupled from the global downturn. All respondents in Ukraine, Russia, Poland and Croatia reported a fall rather than a rise in capital values.

The decline in capital values is only part of the broader concerns for commercial property, given indications that rents are also falling across the world. Property owners rely on rents to provide income, often linked to their debt, which supports total returns even when prices are falling.

Rents are falling across more than 90 per cent of the 46 countries in the survey, with only Brazil, Saudi Arabia and parts of Africa yet to report declines. Weaker tenant demand has led to faster rises in reported available space, which has compounded the gloomy rental outlook.

Rental expectations are weakest in Singapore, Hong Kong and Ireland, with sentiment in countries in emerging Europe also gloomy, particularly in Hungary, Romania and Ukraine. Available space has risen across every region, forcing agents to offer increasingly larger incentive packages in order to secure lettings.

Oliver Gilmartin, senior Rics economist, said the rental downturn was gathering momentum. “The repricing in developed markets has increased pressure on some emerging locations where on a relative basis assets remain expensive.”

via FT.com / Global Economy – Property slump worsens across the globe.

For weeks now, all the talk in the commercial property market has been of green shoots, bottoming out and fresh investment.

That optimism was given a harsh reality check on Wednesday after Land Securities took the largest valuation writedown in the history of the sector and warned of further pain to come.

Although its operating performance was in line with expectations, the £4.7bn drop in the value of its portfolio shocked the market. More worrying was the company’s clear suggestion that the market has suffered from over-exuberance in recent months and the prediction that the real estate slump – already the worst on record – was not over yet.

Over lunch at the company’s London headquarters on the Strand, Francis Salway, the measured and softly spoken chief executive, shook his head when reflecting on the natural tendency of the property market to overreact.

“The market has swung from being excessively gloomy to being too optimistic in the space of months,” said Mr Salway, referring to the recent share price rally on the back of this tangible sentiment shift. “I think schizophrenic is the word.”

At the beginning of the year, few saw any reason to be cheerful, particularly as the big property companies dived into hugely dilutive rights issues to correct balance sheets at risk of breaching banking agreements as asset values tumbled.

More than £3bn was then successfully raised by the sector, parking most of the majors in the safety zone. This, alongside signals that price declines were slowing and sales activity was picking up, caused some in the investment community to call the bottom.

The shift in sentiment most publicly manifested itself in a rally that saw the UK real estate sector rise by more than 50 per cent in weeks. Land Securities benefited, rising 64 per cent from a multi-year low in March.

Several real-estate investment trusts began trading at near parity or even premium to spot net asset values – remarkable given discounts of more than 30 per cent a few months before – leading to a suggestion from Morgan Stanley last week that they could raise additional equity now with little dilution.

New money is already being raised by those who see the opportunities emerging, should this be near the bottom of the market. Nick Leslau, the millionaire property entrepreneur, on Tuesday launched a new Aim-listed investment company called Max Property with a plan to raise £200m, while there are a number of other large unlisted opportunity funds prepared for launch in the next few weeks.

However, the share price rally at least appears to be over, with Wednesday’s measured statements from Land Securities nailing the lid closed. The company’s shares fell 13 per cent yesterday, while the sector slid by almost 8 per cent.

Land Securities has not abandoned its central forecast of a peak-to-trough fall in the market of about 50 per cent. But, given the decline of about 42 per cent since the peak in 2007, this means that there is still a further move downwards to come.

Mr Salway is not without some optimism, however, suggesting there were signs of stabilisation in parts of the market. The value of about £1bn of its properties has stabilised, or even slightly risen in value, showing that there are signs of a two-tier market appearing.

There is a resurgence, said Mr Salway, in property let on longer leases to good tenants, offering investors a decent long-term rental income. This sort of return looks attractive to cash-rich investors, but the market for properties without these characteristics looks dicier.

The move to “defensive” properties pinpoints the key threat to the real estate market this year. Even as investment yields on properties begin to stabilise, rents being collected have only just begun to fall and vacancies will rise as the recession hits occupational market.

Land Securities is shifting from a capital to an income preservation strategy, according to Nomura’s Mike Prew, indicating the increasing risk of earnings pressure. There is a lag for property owners as the fall in rents only shows up as new deals are struck when leases come up for renewal.

For Land Securities, which owns a portfolio of well positioned properties, rents fell 9.3 per cent last year while like-for-like voids rose to 4.6 per cent, from 3.5 per cent. Mr Salway expects rising vacancy rates and weakening rental values – and so further pressure on income.

Rents, he said, are linked to the economy, and so are only likely to turn when economic growth also turns positive. Even so, he is confident enough to suggest Land Securities could return to development next year, given the time needed to build for economic recovery.

Mr Salway is bullish on the opportunities in the market for a group with £1.6bn sitting in its coffers. But, he cautioned, there needed to be patience while the market downturn runs its course. The money could also be used to pay down some of the company’s debts.

The biggest opportunity, he believes, will be when the debt behind property investments comes up for renewal or maturity, and banks or investors need to find a well-capitalised investor as an exit route. He can see Reits raise new capital from the market to fund large acquisitions if necessary.

Land Securities’ “cold dose of reality” – as KBC Peel Hunt called it – looks likely to be a sobering influence on the market for some time.

via FT.com / Companies / Financials – LandSecs finds weeds pulling up green shoots.

Capital values fell in Q1 2009 in office markets across Central & Eastern Europe (CEE) due to widespread yield decompression and falling prime rents in some markets, according to CB Richard Ellis’ CEE Offices Index MarketView report.

CEE weighted prime capital values fell by 41% year-on-year (y-o-y) and 22% quarter-on-quarter (q-o-q) in Q1 2009. Declines have generally been steepest in Eastern Europe (EE), but more modest in some Central European (CE) and Southeastern European (SEE) markets. Whereas the y-o-y decline to capital values in Q4 2008 was caused entirely by yield decompression, falling prime rents in several CEE cities started negatively impacting the capital value index across the region in Q1 2009 for the first time since Q1 2005.

Prime office yields moved out substantially across CEE in Q1 2009. The CB Richard Ellis CEE weighted office prime yield (including Russia & Ukraine) stood at 9.85% at the end of Q1 2009, an outward movement of 93 basis points (bps) q-o-q and 286 bps y-o-y.

Despite the considerable aggregate movements, significant differences now exist within CEE’s sub-regions, as highlighted below:

Central Europe (Czech Republic, Hungary, Poland, Slovakia)

• The Central European capital value index fell by 13% q-o-q and 26% y-o-y in Q1 2009. Capital values have fallen more in Warsaw and Budapest, where prime rents have fallen in recent quarters. In Prague and Bratislava, prime rents have held steady through Q1 2009.

• Central Europe’s weighted average yield moved outward to 7.1%, which is 70 bps higher than in Q4 2008 and 139 bps higher than in Q1 2008. Every CE office market experienced yield decompression in both Q4 2008 and Q1 2009.

• The CE office rent index fell by 5.3% q-o-q and 7.5% y-o-y in Q1 2009. It is likely that downward pressure will remain on CE prime rents, although CE market rents are more sustainable than most other CEE markets.

Jos Tromp, Head of CEE Research, comments: “While rents have moved down somewhat in Budapest and Warsaw, rental movement has been relatively modest so far in Central Europe. Central European markets, like all CEE markets, are faced with reduced liquidity, there is evidence of institutional investor interest in prime office buildings in Central Europe, especially in Prague and Warsaw. The Budapest office market is feeling the impact of a gloomy economic outlook and the market in Warsaw has expressed its more volatile character compared to Central Europe’s other office markets. Outward movement of yields in Central Europe in Q1 2009 helped to reestablish a more significant yield gap compared with the EU-15, making pricing in Central Europe more aligned with its Western European counterparts.”

Southeastern Europe (Bulgaria, Croatia, Romania, Serbia)

• Southeastern Europe’s capital value index fell by 14.4% q-o-q and 29.1% y-o-y as yield decompression and moderate rental decreases took a toll on capital values. Capital values in SEE are now at levels comparable to late 2005.

• The SEE weighted office prime yield stood at 9.62% at the end of Q1 2009, 231 bps higher than its Q1 2008 level. Yields in Belgrade and Zagreb have moved out less thus far than those in Bucharest and Sofia.

• The SEE rent index fell by 4.4% q-o-q and 7.2% y-o-y in Q1 2009.

Tromp explains: “From the remaining pool of potential buyers, institutional investors are extremely cautious about Southeastern Europe purchases and opportunistic buyers require much higher returns. These factors are contributing to longer deal completion times and rising yields. On the occupational side, several Southeastern European markets still have substantial confirmed pipelines that will be delivered in the next two years, which is likely to put further pressure on rents.”

Eastern Europe (Russia, Ukraine)

• The Eastern European capital value index fell by 33.0% q-o-q and 57.7% y-o-y in Q1 2009 (measured in USD). The index has been stung by rapid yield decompression and falling rents in every EE market in recent quarters.

• The EE weighted average yield was 12.81% at the end of Q1 2009, which is 128 bps higher than at the end of 2008. Yields have moved out sharply in every office market in the region in the last two quarters.

• The EE prime rent index fell by 26.0% q-o-q and 35.1% y-o-y in Q1 2009 (measured in USD).

Tromp comments: “After a period of rapid yield compression and rental growth from 2006 to early 2008 in Eastern Europe, investors are now returning to traditional risk profiling and the Eastern European markets are consequently repricing in line with this behavior. Although the outlook for rents and yields in Eastern Europe is difficult to predict, existing political and economic risks in the sub-region make further outward yield movement and downward pressure on rents possible this year.”

Source: CB Richard Ellis

via Capital values fall 41% across CEE due to falling rents and yield decompression (CEE).

The unprecedented 100 percentage point spread of performance within the European unlisted real estate property fund market in 2008 reflected the geography of investment returns, the impacts of leverage, and a further penalty for some investors of adverse currency movements, research based on the new IPD European fund indices reveals.

According to the inaugural bi-annual IPD European Pooled Property Fund Indices 2008 (e-PPFI) – reporting the NAV based total return performance of 203 predominantly core and value-added funds representing a total NAV of 121 billion euros – European unlisted pooled funds delivered a local currency time-weighted total return of -7.4%, which translated to a -14.8% return to Euro denominated investors, each of whom suffered the added pain of a major fall in the sterling-euro cross rates.

Both of these figures, however, mask a much more complex set of competing influences. Across the database, performance varied dramatically – from -80% to +25%, in local currencies. The pattern of fund performance, either side of the -7.4% value weighted average, is almost entirely explained by the geography of investments, with UK pooled funds falling to the left of this average and mainland Continental funds to the right, as indicated in the fund ranking graph shown above.

The reported six-monthly Indices numbers are constructed on the same basis as for all other fund indices published by IPD, and demonstrate the imbalance between the two halves of 2008 – with most of the decline experienced in the second half year.

By comparison with other investments, European pooled funds outperformed European equities and property equities which both delivered deeply negative returns at -38.5% and -48.6% respectively, according to the MSCI Europe and the FTSE EPRA/ NAREIT indices. However, unlisted European property funds underperformed European bonds, which returned 7.7% over 2008.

The full picture of direct property performance at a European scale will be released on May 11th 2009 in the IPD Pan-European property index.

source : IPD

via European pooled funds suffer both market and leverage woes, says IPD.

Direct retail real estate investment in Continental Europe totalled €980 million in the first quarter of 2009, 37% down on the previous quarter (€1.5 bln.), according to new research from Jones Lang LaSalle. Western Europe accounted for the vast majority (89%) of transaction volumes as European investors are increasingly focusing on their home markets. The proportion of retail investment volume accounted for by domestic investors has increased from one third in 2008 to over half in Q1 2009.

Jeremy Eddy, Director European Retail Capital Markets, Jones Lang LaSalle, said: “Investors continue with their ‘wait and see’ strategies in Continental Europe, with most markets seeing some fall in prices in the first quarter. At the same time, the high cost and lack of access to finance continues to restrict market liquidity, particularly for larger transactions. There is demand for prime product in the best locations and low vacancy rates in many top schemes provide the secure long-term income that investors seek.”

Italy and Germany were the most active markets in Continental Europe, accounting for 31% and 28% respectively of total transaction volumes. In Italy two deals over €100 million were completed: the Barberino Designer Outlet centre and the Centro Rondo shopping center in Monza, while Germany was the most active market in terms of the number deals – nine completed in Q1. Investment into Central and Eastern Europe was quiet, due in part to the lack of domestic investors in these markets.

Shopping centers were the prime target for investors but accounted for just over one third of the total volume transacted, compared with 55% in 2008, reflecting the lack of prime product on the market and the difficulty in raising finance for funding larger transactions. Nevertheless, shopping centers with strong defensive qualities in terms of location, scale, tenant covenant and quality remain a key target for investors in 2009. Factory outlet centers, accounting for 26% of transaction volumes, were also a target in Q1, as Henderson and Neinver consolidated their outlet portfolios.

In comparison, transaction volumes in the UK totaled of €1.3 billion in the first quarter – up 54% on Q4 2008, although the sale of a 50% stake in the Meadowhall shopping center accounted for almost half (48%) of this volume. Investor interest in the UK market is increasing following a sharp outward movement in yields, but this re-pricing does reflect on-going concern about rising vacancy rates even in prime locations.

Turning back to Continental Europe, Ferenc Furulyas, Head of Capital Markets Hungary, concluded: “We expect that as the year progresses and buyer and seller expectations are increasingly aligned and the market moves towards fair value that transactions will be forthcoming. Two major drivers to this will be the realization of valuation markdowns and a restricted return of liquidity from the banking sector.”

Source: Jones Lang LaSalle

via JLL: Retail real estate investment down in Continental Europe in Q1 (EUR).

Sponda Oyj on jatkanut yritystodistusohjelmansa varaohjelmana olevia luottolimiittisopimuksia 12 ja 24 kuukaudella eteenpäin. Sopimuksia jatkettiin nykyisten luotonantajien kanssa siten, että 150 milj. euroa erääntyy 12 kk:n päästä ja 100 milj. euroa erääntyy 24 kk:n päästä.

Kurssi nousi tiedotteen jälkeen 10.8%. 80 miljoonan euron laina vastaa noin 4% korollisista veloista.

Lisäksi Sponda solmi sopimuksen 82 milj. euron vakuudellisesta luotosta Helaban (Landesbank Hessen-Thűringen Girozentralen) kanssa. Luotto on 5-vuotinen ja sillä varmistetaan vuonna 2010 erääntyvien joukkovelkakirjalainojen uudelleenrahoitus. Lainasopimus vahvistaa Helaban toimintaa pohjoismaisilla markkinoilla.

Luottojen marginaalit vastaavat nykyistä markkinatasoa. Lainajärjestelyillä ei ole oleellista vaikutusta Spondan rahoituskuluihin. Lainojen kovenantit vastaavat Spondan muiden lainojen kovenantteja, joista keskeiset on sidottu omavaraisuusasteeseen ja korkokatteeseen. Nyt tehtyjen lainajärjestelyjen jälkeen Spondalla ei ole muita pitkäaikaisia luottoja, jotka erääntyvät ennen kevättä 2011.

via Sponda / www / Suomeksi / Media / Tiedotteet / 2009.

But Low Vacancy Rates Keep Prime Schemes in Demand amongst Investors

London, 22nd April 2009 – Direct retail real estate investment in Continental Europe totalled €980 million in the first quarter of 2009, 37% down on the previous quarter (€1.5bn), according to new research from Jones Lang LaSalle. Western Europe accounted for the vast majority (89%) of transaction volumes as European investors are increasingly focusing on their home markets. The proportion of retail investment volume accounted for by domestic investors has increased from one third in 2008 to over half in Q1 2009.

Jeremy Eddy, Director European Retail Capital Markets, Jones Lang LaSalle said: “Investors continue with their ‘wait and see’ strategies in Continental Europe, with most markets seeing some fall in prices in the first quarter. At the same time, the high cost and lack of access to finance continues to restrict market liquidity, particularly for larger transactions. There is demand for prime product in the best locations and low vacancy rates in many top schemes provide the secure long-term income that investors seek.”

Italy and Germany were the most active markets in Continental Europe, accounting for 31% and 28% respectively of total transaction volumes. In Italy two deals over €100 million were completed: the Barberino Designer Outlet centre and the Centro Rondo shopping centre in Monza, while Germany was the most active market in terms of the number deals – nine completed in Q1. Investment into Central and Eastern Europe was quiet, due in part to the lack of domestic investors in these markets.

Shopping centres were the prime target for investors but accounted for just over one third of the total volume transacted, compared with 55% in 2008, reflecting the lack of prime product on the market and the difficulty in raising finance for funding larger transactions. Nevertheless, shopping centres with strong defensive qualities in terms of location, scale, tenant covenant and quality remain a key target for investors in 2009. Factory outlet centres, accounting for 26% of transaction volumes, were also a target in Q1, as Henderson and Neinver consolidated their outlet portfolios.

In comparison, transaction volumes in the UK totalled of €1.3 billion in the first quarter – up 54% on Q4 2008, although the sale of a 50% stake in the Meadowhall shopping centre accounted for almost half (48%) of this volume. Investor interest in the UK market is increasing following a sharp outward movement in yields, but this re-pricing does reflect on-going concern about rising vacancy rates even in prime locations.

Turning back to Continental Europe, Jeremy Eddy concluded: “We expect that as the year progresses and buyer and seller expectations are increasingly aligned and the market moves towards fair value that transactions will be forthcoming. Two major drivers to this will be the realisation of valuation markdowns and a restricted return of liquidity from the banking sector.”

Notes to Editors

This research considers all investment sales of shopping centres, retail warehouses and factory outlet centres in Continental Europe. Our analysis excludes the UK & Irish markets, the high street and any investment deal less than €5 million in value.

via Uutiset. Jones Lang LaSalle.