COMMERCIAL REAL ESTATE

Commercial Real Estate Professionals & Investors Group - Network, Find Funding, Promote Events, Projects, Products and Services

2011-06-25T13:51:00.000+02:00

Commercial Real Estate Professionals & Investors Group - Network, Find Funding, Promote Events, Projects, Products and Services

PROPERTY MARKET SYNOPSIS 2010-09

2010-09-06T08:14:00.018+02:00

We present our brief synopsis on the markets we are following. We trust you find it to be of value.

UNITED STATES
A reputable survey of Global Real Estate Investors finds that most such investors expect the highest capital growth to emanate from the US Market. Whilst there are positive signs of growth in the US economy, the way forward is represented by some conflicting views. Some analysts are expecting a double-dip recession; others believe a secondary recession will be averted.

Liquidity, or rather unwillingness to commit capital, remains a telling factor with the banks remaining under pressure and private money still on the side-line for the most part. Of the 7800 odd banks in the US, 829 remain on the FDIC’s “problem list”, yet industry profits rebounded to $21.6 billion. US private funds are sinking into UK, Europe, Asia and Emerging Markets while at home defaults continue to escalate, albeit at reduced severity levels.

Further government intervention in the market is unlikely, as such stimuli will lead to the ill-effects of an excessive deficit in the long term. Commercial Real Estate occupancy levels are steadily rising, leading to increasing revenue and consequently increased asset values, which holds the key to recovery in the sector. A number of private equity groups have seen these effects and are gradually injecting liquidity into top-end cash strapped real estate funds.

The US economy is on a knife’s edge…very much a sentiment driven market at present. Repeated slaps in the face eventually causes retreat at the first sign of conflict and the US market has had its fair share of face slapping of late. A slow arduous recovery is certain…a double dip recession? It depends on who you talk to…we believe this may be averted but one more slap in the face with a high profile failure may well break the spirit and send it cartwheeling into recession again. The wise investor, who is an experienced market cycle trader, will remain calm, slow down and seize opportunities in the quagmire.

UNITED KINGDOM AND EUROPE
UK CRE commenced recovery in Q4 2009 and all sectors have shown double digit capital growth over the past 12 months, retail leading the charge followed by the office market and industrial bringing up the rear. Q2 2010 was characterised by a phenomenal spurt as offshore and UK institutional investors gained confidence. However, there has been a significant slowdown in the last four months as concerns over the health of the economy bring a level of caution to the market. While momentum subsides, the office sector strides ahead bolstered by demand for offices in central London where the strong take up of space will enable landlords to dominate rental negotiations for the time being.

A number of European markets are experiencing downward pressure on yields and escalated rentals leading to increased asset values. In fact, a great degree of stability exists with the market waiting for key economic factors to slot in place and give impetus to tenant demand and consequently property investment. Focus is on core prime properties on long term leases with strong covenanted tenants in major centres like London and Paris office markets that have made a strong showing.

The shining light in Europe is Germany which has seen significant activity across all property sectors in the last six months and is anticipated to more than double last year’s property trades. Germany is seen as a safe secure haven for investors and the sheer volume of activity is testament to this. A number of SA funds found it prudent to enter this market recently and it is already paying significant dividends.

AUSTRALIA
It would appear that the forecast of most Australian CRE investors last year (Property Market Review 2009-08) was correct in that the economy is set for a strong recovery in 2010 as retail sales and exports boom. Foreign investors, including big name brand SA funds, have seized the moment. These new participants in conjunction with the re-entry of institutional investors bodes well for the Australian CRE market. Even foreign residential investment funds are entering the market with a view that the current sideways movement in the residential market is set to turn North over the ensuing 12 months.

Dominant regional and sub-regional retail centres are in good demand and sell readily at around 8% yields. Suburban centres are also weighted with investors, trading at around 9% yields.

For risk averse CRE investors, the Australian market poses an extremely credible option.

SOUTH AFRICA
Recent failures in the SA market initially created concern but closer inspection revealed that such failures resulted from management issues rather than the economic soundness of the industry.

CRE in South Africa has remained remarkably resilient throughout the global crises and has consistently outstripped returns of some of the most prominent global markets. Some argue that this is partly due to the market standard of set annual rental escalations ranging from around 8% p.a. to 12% p.a. as apposed to rental reviews every 3 or 5 years as is the case in many mature markets, however, lease terms are of shorter duration than these markets (predominantly 3 to 5 years) which allows for regular rental corrections to market levels. So the resilience has more to do with the reasonable economic stability, fundamental soundness of the property market and acumen in the SA property industry rather than the structure of lease agreements. SA does not need to be number one globally, but rather needs to remain stable and consistent to attract investors to its shores.

A significant factor that has contributed this year is the en-masse re-emergence of private investors, some with hordes of liquidity to take up property disposals from funds that are realigning portfolios to core dominant assets in major metropolises as well as a result of sector reshuffling. Suburban retail centres are in ready demand however the greatest challenge is achieving consensus ad idem regarding pricing. Smaller retail centres outside major metropolitan areas remain a challenge.

A trend boosting the industrial market is fund realignment to this sector and large industrial manufacturers seeking to procure their own premises, particularly in Gauteng. The office market is rather fickle due to the ease of occupiers to relocate, however tenancy demand is steady. Of concern is Government tenanted buildings where an ever increasing number of BEE investors are declining to pursue opportunities due to new unfavourable lease conditions contained in the Government’s standard lease document and some suspect “extra-ordinary costs” which are particularly prevalent in the FS.

Overall, the SA CRE property market is a sound investment choice across all sectors with a preference for well-established nodes of economic activity.

Comments and observations are welcome.

Residential Investment Property, Memphis, Tennessee

2010-07-02T16:05:00.004+02:00

Dunbar Property Group is pleased to offer clients an amazing opportunity to invest in high yielding, completely refurbished, detached 3 and 4 bed homes in Memphis, Tennessee.

Working in conjunction with the City housing department to purchase and completely renovate foreclosure homes and re-housing families.

Properties are acquired for a cash outlay of just $55,000.

Homes are completely renovated to a very high standard and exceed the requirements of the US department of Housing and Urban Development (HUD). Our properties are in high demand by a waiting list of government approved and private tenants. Memphis has a buoyant rental market and provides investors with substantial cash flow per month due to 45% of the population renting homes.

Residential Investment Property, Lee County, Florida

2010-07-02T08:02:00.007+02:00

Investment real estate in Lee County, Florida, United States. Residential property fully refurbished, fully let and managed by in-house team of real estate experts and professionals.

Why on Earth Invest in Emerging Market CRE?

2009-10-07T15:51:00.013+02:00

With opportunities abounding in Real Estate markets across the globe, why would a commercial real estate investor even contemplate investing in an unknown market let alone an Emerging Market?

Apart from fear of the unknown, investors seldom research the huge differentials between their security blanket market and that of other markets. Also often overlooked is ROI vs ROE, the former been based on the Net Operating Income of the Property measured against the Purchase Price and the latter being the Net Income after Finance Costs measured against the Equity Contribution from the investor.

We use South Africa as an example as this is a market we know intimately although this is one of many to contemplate.

So what are these differentials?

Well for one, there are the technical differences in the lease structures. Whilst in the US, leases can run up to 25 years or longer with periodic rent reviews, in South Africa it is common for leases to range between 3 years and 10 years, however, the rentals escalate every year at a preset percentage, usually between 8% and 10%.

Secondly, there is the significant interest rate differential. US interest rates on borrowings are around the 5% mark whereas in South Africa current interest rates on borrowings are around 13%.

Thirdly, there is the colossal differential in yields or cap rates. US cap rates for quality investments can be around 6% whereas in South Africa, quality starts off at around 10% and peaks at around 11.5%...most stock at higher cap rates are often sub-standard investments.

Lastly, exchange rate differential which brings into play currency risk…should the Emerging Market currency depreciate against the Dollar in this instance, the investor will start generating less returns in Dollars. This is a very real risk and for risk averse investors, a currency hedge is imperative…we recommend a hedge for up to 10% depreciation on the currency in which the real estate is located.

So what does all this data translate to? Well, permit us to use an example supported by the numbers contained in this link:
http://www.dunbar.co.za/downloads/SAvsUS.xls
Imagine investing in quality CRE at a yield of 11% and obtaining fixed rate funding at around 5% (say 4% on finance and 1% for the currency hedge) over a 10 year term.

Between years 3 and 5, the ROE surpasses the ROI with a significant leap in ROE after finance is settled because the investor is not using his own capital to pay the finance instalments…the property rentals perform this function.

In this example, the South African rentals will continue to escalate, all things being equal, whilst in the US, rental reviews are periodic. In Rand terms, ROE will be over 300% after 20 years whilst in Dollar terms ROE will be some 275% given a 10% depreciation in the Rand with a currency hedge in place.

So why on Earth would one NOT invest in Emerging Market CRE?
Note:The financial model per the link is very simplistic...it merely illustrates the differentials contained herein and is not designed to measure other risk factors in real estate that are common to all markets.

Property Market Review 2009-08

2009-08-30T23:03:00.005+02:00

Dunbar Property Group presents its latest snapshot of views expressed on the current commercial real estate markets it is monitoring. We trust you will find value in the synopsis.
UNITED KINGDOMWe have been forecasting for some time now that the UK real estate market will be the first mature market to recover and V shaped at that. Many global investors concur with this view and some are calling the bottom of the market. Significant capital is already flowing into the UK market with big name brands seizing the opportunity for early entry. With some 20% to 40% declines in the last year and a half, this seems to make good business sense as property is a long term asset class; the decline has slowed remarkably in the last few months as financiers, private equity groups and investors start frenetic activity. Deals in the residential market are also churning as finance becomes more readily available and surprisingly it is the London Luxury Market leading the way. This is indicative of institutional acquisitions for corporate executives.
For those investors who wish to seize the moment, we are listing UK real estate investment opportunities with a focus on London and strong covenants on long leases. We also believe the turn in the residential market will be significant and have listed an opportunity to invest in a central London residential fund.

See “OUR OFFERINGS” below.

UNITED STATESWe believe the US market has some way to go with a high degree of uncertainty still prevalent, however, there are some areas portraying resistance, improvement and recovery. Deal making is taking place at an increased pace in these areas at significantly higher yields, factoring in future vacancy expectations.
Retail and office demand for space continues to decline leading to expanding vacancy factors as hefty job losses continue to weigh on the market. Leisure leads the distressed wagon followed by Retail, Industrial and Office in a close bunch with property for sale far exceeding demand. A bottom is anticipated in 2009 followed by volatility in 2010 characterised by further value declines (already exceeding 40%) and repossessions. So whilst there are opportunities, particularly in major metropolitan areas, caution is advised.

AUSTRALIAQuick government intervention saw Australia avert a technical recession which boosted confidence considerably. A vast majority on Investors in Australian CRE believe the market is in stagnation heading for upswing in 2010. Other reports suggest the market is set for a further correction in 2010. Institutional investors appear very much on the sidelines as local private investors and syndicators take up the bulk of declining transactions followed by a number of bullish offshore investors. The Australian market is not clear cut one way or the other but there is optimistic activity and may warrant well researched scrutiny.

SOUTH AFRICAWhilst South Africa was largely unscathed by the global credit crunch a combination of factors is having a negative impact on the market. For one, the financiers went into hibernation peeking out every now and then with excessive margins and fees, negating the entire effect of recent interest rate cuts by the central bank. A number of private funds were caught in the high interest rate cycle and due to the lag effect, some of these funds are now falling into liquidation.
On the whole, though, the CRE market is fundamentally sound albeit with tenant delinquency on the increase. The institutional investors are still the dominant players with big purse strings and low gearing, which bodes well for upper end commercial property. Private investors are also coming to grips with the market, becoming street wise and bolstering up in JV’s, resulting in increased demand. Yields are still trading in a narrow band width between 10.5% and 11.5% for the most part with some stressed sales in excess of 12%. Good quality has potential to get 10% but as yet, we have not encountered the sub-10%’s seen some 18 months ago.

OUR OFFERINGS (Select Preference)

Central London Residential Fund
UK CRE Investments
SA Private Equity
SA Commercial
SA Industrial
SA Retail
SA Leisure
SA Development Land

Your comments and observations are always welcome.

Banks…is it acceptable to breach Values for the sake of Profit?

2009-05-23T11:56:00.005+02:00

In the vibrant world of real estate where banks are not just financiers but have also become investors and private equity participants, it is ever increasingly critical to accurately note the outcome of a loan application to obviate any concerns of conflict of interest.

Case in point…a commercial property was recently sold to a private client and application for finance was made to III banks. Bank I reverts with an offer significantly below par given the quality of client, substantial asset backing and superior cash flow from the property. Bank I’s offering is therefore promptly rejected by the private client.

The very next day the seller’s agent is informed that Bank I declined finance for the private client. In the first instance, breach of confidentiality comes into play and then it comes to light that Bank I had a keen interest in acquiring the very same property for its own book.

Now Bank I does not only become the subject of suspicion for breach of confidentiality, but also appears somewhat guilty of unethical behaviour. It would seem that the “leak” to the seller’s agent that finance was declined for the purchaser, a blatant untruth, was an attempt to scupper the transaction and open the door for Bank I to acquire the property.

In the current market of multi-faceted stake holders and free flow of information, the banks in particular need to scrutinise their procedures and up their ethics. A simple test is to conclude transactions on the basis that the applicant is your mother, assuming of course that you love your mother. This is nothing out of the ordinary…simply ensure that employees respect the bank’s philosophies and values. I have yet to see values that promote breach of confidentiality, lack of integrity and subversive ethics…yet it happens!

Emerging Markets: South Africa

2009-05-07T10:01:00.008+02:00

South Africa has just experienced its most successful democratic election to date with some fascinating results. The ruling party lost ground (over 4% of the vote) and more importantly, its 2/3rd majority, which further entrenches a very sound constitution. It also lost the Western Cape where the opposition now has opportunity to reflect its governance potential. In years to come, we would expect further splits in the ruling party and a consolidation of opposition parties resulting ultimately in an even support base and politically sound economy.

Post election confidence in South Africa has grown significantly with the local currency gaining nearly 20% on the US$ in the past month. Vast capital inflows are evident and many new PEVC funds are being established specifically for the vibrant commercial real estate market, affordable housing development, leisure projects and infrastructure development where returns are significantly higher and more certain in the current worldwide economic climate.

Immense amounts of capital are being injected into infrastructure development and significant leisure projects coming on stream driven initially by the 2010 Soccer World Cup and the post-cup tourism growth potential given what the country has to offer in terms of radiant weather conditions, game, hunting, golf meccas, world sporting events, extreme sports, professional hospitality industry, historical riches, research facilities and much more.

The US State Department’s latest report on the investment climate in South Africa reflects a very positive stance and provides insightful information on the factors relating to the SA market as well as important research contacts… read more.
To this end, we invite you to research and take advantage, in certainty in a globally uncertain market, of opportunities in harbour & waterfront developments, golf resorts, hotels, condos, game reserves, commercial investments, shopping malls, affordable & mid-market residential developments etc.
- PEVC & Funding

- Commercial Real Estate

- Leisure Real Estate

- Development Projects

Is there cash lying around?

2009-01-26T16:34:00.003+02:00

Well, yes…the banks are full of it but seem too afraid to use it expansively. But there is a more “sinister” pool of cash waiting in the wings…Vulture Capital! These reserves run into billions of pounds and are held by large corporations waiting for signs of a turnaround, looking to pounce on the distressed market. They anticipate further falls in property values, so remain sitting on the high wires observing. Enquiry flow into the UK is hotly on the increase though, an indication that large portions of capital flow and deal making, probably towards year end or early 2010, is aimed at the UK market.

It is ironical that a vast proportion of Vulture Capital emanates out of UAE yet that market has come to a virtual standstill with investors preferring to hold for foreign opportunities, even South Africa. This gives impetus to the view that UAE capital is well educated and geared more toward risk-to-return financial prudence rather than grandiose emotive expression of self-wealth.

Talking about joint ventures, what’s up with mergers?

2009-01-26T16:30:00.003+02:00

As mentioned in one of our previous newsletters, we anticipate a flurry of merger activity in the property sector in South Africa. Our initial assessment was based on the need to have larger property entities to attract significant offshore capital. The property sector is gaining momentum in international standardisation and the latest merger activities are set to conform to the preferred international standard on internal asset management. Asset managers with large corporate accounts need be wary that if they are not prepared for merger or not merger material, they could be looking to a shrinking client base in the not to distant future.

Are SA banks running scared?

2009-01-26T15:53:00.005+02:00

A scary trend we have noticed the last few months is the onerous finance conditions SA banks are applying to commercial & industrial property investments, particularly for small to medium size investors. With the economic downturn and potential tenant failures, some might consider this prudent lending, however, the conditions are so tight that it is causing transaction loss and significant retraction in wealth creation by the affected parties. Whilst these may be times to be conservative, it is also a great opportunity to be innovative. Many banks do participate in equity transactions in larger investments with set exit strategies, however, they have a magnificent database to match small to medium size investors into partnerships against mutual approval of course. The banks are in an ideal position to facilitate these introductions as they have financial track records and would be well aware of best fits. This methodology will mitigate the risk with greater equity stakes possible from two investors and thus keep the deal flow churning. Rather than lose two transactions from two investors, create a mechanism for them to joint venture and get the deals done.

All is not the fault of the banks though. Many of these investors are wary of the unknown and shy away from partnerships with unknown entities, preferring to go it alone. The onus is on the investor to provide the bank with comfort and given that the banks are adopting a more conservative stance, the investor has to adapt. So either greater deposits or greater security is called for. Both these aspects can be catered for in joint ventures with like-minded investors during these turbulent times…the funds do it…large investors do it…the banks do it…why not?

Interest Rates have turned...now what?

2008-12-14T18:18:00.004+02:00

Many South Africans have short memories or are simply too young to have experienced it...the inevitable cycle of business. Whilst we are in turbulent times, those who have experienced tough times know that these are exciting times...a window of opportunity to enhance wealth creation while many go in to panic mode.

Only a few years ago the JSE All Share was at 10 000, rocketed to 33 000 and fell double quick time to around 20 000....still up 100% over 5 years or so but doom and gloom is spread through the media like wildfire as if the world is at an end! Those who remember our murderous 80's and Chris Stals' 25% interest rate environment will be calm and calculated, knowing that better times are on the horizon.

Not so long ago, property was the poor mans choice as far as many bankers were concerned...cash, equity and bonds were the predominant quotes given to investors up to the late 1990's...how times have changed! Property is now by far the least turbulent asset class that provides return and capital appreciation. Certainly there have been crunches and we expect these from time to time. As a hardened business man you will have a long term strategy that transcends cycles, even recessions, and will be usurping opportunities in the market. As long as the blood in your veins is type B-Positive, you will achieve success at the expense of the B-Negatives.

SA's interest rate environment seems to have peeked and heading south once again which is not a good sign for one who is cash flush and has not taken advantage of the strenuous market conditions. We do not expect a major shift in cap rates but we do anticipate a shift in expectations, leading once again to polarisation between property buyers and sellers. It is the broker’s responsibility to either find the upside for an investor or hold council with the seller, ensuring that expectations remain realistic and beneficiation is achieved by both parties.

Does Web Marketing of Commercial & Industrial Property guarantee you Exclusivity?

2008-11-12T06:29:00.007+02:00

Well, yes and no...it depends on who you are dealing with!

Every agency has its own marketing strategy. Many simply blanket the market in the hope of a hit. This obliterates your chances of exclusivity or near exclusivity to information and you effectively land up competing against everybody and his dog. To make matters worse, with the downturn in the Residential Market, the Commercial & Industrial Market is being flooded by residential agents who in many cases are hopelessly unskilled in Commercial & Industrial Property....when you ask about yields and get silence at the other end of the line, start to worry.

An effective agency who knows that the market demands a high degree of exclusivity will have a comprehensive multi-tiered marketing strategy that provides limited information on the website designed to generate an enquiry. No identifiable features should be obvious and when enquiries are received, it is then important to close off enquiries after two or three serious suitors have been supplied with information. Now you know that you have a reasonable chance of concluding a transaction in a near exclusive environment.

A quality agency will also have a high degree of off-market sales where they have a number of clients profiled to receive certain types of properties before they go to market. It is always a good idea to place your profile with top agencies to ensure you get these near-off-market opportunities. Approximately 30% of our sales occur in this format.

The agency will also adhere to the seller's mandate and it does sometimes occur that the seller requests full blown exposure...this is quite common with private client mandates as opposed to institutional mandates. The agency should then follow the stepped marketing plan, gradually increasing the property exposure over a period of a week or two. A professional agency will first profile the property to 10 suitors and make the calls. Without success in two days, the property is web listed followed by inclusion in a database mailer. Thereafter the agency will open the marketing to its network agencies.

So, whether the mandate is low profile or high profile, if you have a comprehensive investment profile lodged with the agency, you will still get near exclusivity.....provided of course you are dealing with a professional agency who understands your needs.

Global Property Review – September 2008

2008-10-05T10:50:00.009+02:00

Opportunities arise where chaos reigns!

To say that the mature markets are in a state of chaos is an understatement, with authorities fast-tracking bail-out plans, big names folding and a flurry of closed door secret meetings.

The struggling US bank bail-out is set to broaden its scope and will barely scratch the surface of the root problem. The figure of US$ 700bn seems to be chosen on the basis of what would pass congress rather than what is actually required. The US deficit will race to a record US$450bn 2008 and set to exceed US$600bn 2009 with some 10 000 new baby-boomer retirees every day in the US biting at social benefits.

In the UK closed door meetings with big banks are in progress and one could anticipate announcements soon. Pressure is mounting on the BoE to act as lending dries up and companies find it increasingly difficult to issue commercial paper, forcing them to draw on more expensive credit lines and thus placing additional stress on the financial system.

All these events are indicative of economies heading for recession and it will take a monumentous effort to slow down the juggernaut, let alone turn it around! The banking crisis, combined with the problems facing US investors, has presented foreign property investors with powerful opportunities but these should be thoroughly researched, preferably using expert knowledge in the market being considered.

We still feel the UK market to be the primary source of opportunity despite significant oversupply of property stock in certain sectors. We are also concluding some commercial property transactions in East Berlin using the outgoing Foreign Direct Investment allowance. We regard Eastern Europe as an emerging market, much like South Africa, where prospects are good for sustained growth.

So whilst stress levels are rising offshore, it is business as usual in South Africa, albeit with some serious politicking which passed by almost unnoticed globally. It is often easier to criticise than to complement but SA owes a great deal of respect to the treasury and finance department advisors for their incredible foresight. For sure there will be impact but SA will emerge relatively unscathed from the global credit crunch.

To end off, worth a mention is the tenacity of Neill Bernstein in securing the Trump organisation to invest in South Africa. Certainly with the global crises, we should be able to attract many more property investors to our safe property haven. Negative perception is something that only we (SA) can create and likewise only something we can change. We cannot sit back and expect investors to flock to our shores ... we need to do "The Bernstein Thing"... change the perception and show the opportunity.

Is Auction appropriate for Commercial Property in South Africa?

2008-08-31T13:18:00.022+02:00

Well, it depends on who you want at the party and the economic cycle.

What we have found is that auctioning commercial property in South Africa attracts a certain calibre of property investor and, more importantly, chases away another calibre of property investor.

So who is attracted? ... Predominantly, but not exclusively, the bargain hunter hoping to clinch property at a decent yield. These are invariably private investors on a specific budget with no specific property in mind. A vast majority of these investors are very professional and will have done a full due diligence ... but only to the extent of information available pre-auction.

So why do we not see more top property investors at auctions? It’s all about exclusivity, or near exclusivity, of information. Top property investors simply prefer to look at off-market, or near off-market, opportunities with a good chance of closing on a commercial property should it suit their profile. These astute investors are very specific, do intensive market research and will not be put into an auction arena to bid against their industry piers.

Having said that, the calibre of properties top commercial property investors pursue is very different from the small to medium size private investors. There is no distinct boundary between properties suited for small/medium investors vs. large private property investors, institutions and funds; however, it is safe to say budget plays a significant role. Top end investors lean towards high end properties of substance with voluminous GLA, good tenant profile and location whereas smaller investors are more yield driven with budgetary constraints.

So if smaller commercial property investments are more suited to the small/medium size investor, is it then appropriate to take such properties to auction? Well, here is where the economic cycle comes into play. With interest rates where they are at present, small/medium size property investors are finding it increasingly difficult to come up with the budget. They simply cannot afford the reserve price vs. the risk profile of the property, given that the finance house will advance a certain loan to value taking into account, amongst other things, the property's risk profile. Then there is the shortfall of net income after funding cost!

This dilemma will be evident to anyone following property auctions across the country. Bidders are being converted to look-see side liners as the economic cycle takes it toll with price expectations remaining where they were a year ago. In some instances, the auctioneer may come away with a sale or two but predominantly, sales are baseline.

This then brings into play another dilemma for the property owner....the property is now tainted as one that could not sell on auction and the entire market knows what the top bid price was. It is now unlikely that it will be sold at the reserve price, let alone the hope for above-reserve price.

The above scenario is generalised and there are some exceptions, however, we believe the risk is currently too high for sellers of commercial property to contemplate. The alternative old fashioned methodology is much more palatable...place the property with a commercial property specialist broker who is honest enough to council on pricing and recommend not going to market if the price expectation is not in line with the market.

Should the reason for selling be property specific, avoid being tempted into non-disclosure of negative impact information. Such information will come to market at some stage which more often than not leads to damaged reputations. It could also result in costly litigation post due diligence and transfer.

Profile the property to 10 suitors. The broker can either consult direct to database, mail to database or via web promotion. The trick is to close off with 10 genuine suitors to give a high degree of exclusivity. If one of these suitors does not purchase the property, there is something amiss. Take to heart the feedback, remove the property from the market and try a year later. If the sale is imperative, let one of the 10 have it on terms negotiated.

Global Property Market Review – July 2008

2008-08-01T15:47:00.005+02:00

South African Property MarketIndustrial property has been the top performing class for 2 years and is set to continue despite the slow down in manufacturing and difficult times ahead for distribution tenants. Rising building costs coupled with power restrictions has put a dampener on new projects and existing space is in limited supply with vacancy levels dropping rapidly. Fundamentals remain strong for Industrial Property and we anticipate some significant double-digit rental growth, particularly for modern well positioned industrial properties.

The retail sector is set for a torrid ride with consumer spending plummeting and oversupply in certain areas. Whilst major anchors are geared for tough times, they will be negotiating lower rentals and some smaller non-national tenants will be closing shop, particularly luxury and non-essential product and service providers.

The leisure property industry is attracting considerable offshore interest with notable foreign investment over the past few years and still escalating. Recently some premier game reserves have been acquired but the overwhelming investment is in hotels and resorts across the country with some R 25bn in new projects announced in the last 2 weeks.

We anticipate the slow down to persist for 18 months to 2 years followed by a strong resurgence. In terms of property with its long term view, this is but a blip on the radar screen and provides a lot more comfort than other asset class investments.

UK and European Property MarketThe UK market has become fairly priced and an exception in mature markets moving from most overpriced to the fairest priced in rapid time. The market is firmly internationalised with cross-border investments making up over a third on property transactions in the last quarter. Global equity investors are poised for acquisitions but these will be well researched and strategic. There is a lot of hurt in store for euphoric entry into the market, particularly with stressed sale opportunities.

The Central London office market is still fraught with danger as oversupply, tighter credit and lower rentals send profits tumbling for funds that are weighted in the office market and further declines are certain. West end is a stark contradiction with rentals holding strong as supply remains relatively static.

Generally there are some good yields coming forward but these come with the associated risk tag. Dunbar Property Group has to date focused on UK properties under long leases (20 years plus) with strong covenants and the resultant tighter yields, however, for investors that are more risk centric, there are opportunities closing in on 9% yields.

In Europe for the most part, anticipate steadfast economic growth to support CEE office rentals following a sustained period of a supply-driven market versus speculative developments. Expect a surge of office developments in these markets over the next 2 years but developers need to be cautious to select locality prudently as smaller markets may be at risk of over capacity. Cities which we believe to have strong fundamentals include Prague, Kyiv, Moscow and Belgrade.

CEE is also rated the top European locations for industrial property as international business expansion is focused on the Eastern borders. Bulgaria land is the most expensive but is mitigated by higher rental demand and lower labour costs. Romania is also in good demand with lower land prices but less attractive destination.

United States Real Estate MarketThe United States is in a state of stagnant activity by comparison to years gone by. Transaction values are skewed by Apartment-to-let sales which have boomed. Closer scrutiny reveals dramatic declines in industrial, office and retail property sales, a fall-off of between 47% and 86%, this as a result of sellers being steadfast in their illusion of historical pricing and greater equity requirements in light of tighter credit. Having said that, there is a substantial amount equity waiting for the right price as tenant fundamentals and employment figures remain encouraging in most US markets.

Retail properties have overwhelming signs of weakness with rising vacancy factors and store closures. This is an asset class where sellers and buyers are closer on pricing with some centres trading at 11% yields. No stressed selling has been seen yet in this sector, however, if the economy pursues its declining trend, this scenario may change.

Some analysts are predicting a fast turnaround for the US economy basing their assumptions on Federal Reserve intervention, the weaker dollar boosting exports and low institutional debt. Others argue that there are insufficient property investors that concur with this view. Be that as it may, the market has some excellent opportunities for astute property investors with cash in the bank and effective asset management teams.
Australian Property MarketThere are no signs of relief for the spiralling Australian property market and conditions are set to worsen next year. The office market is expected to experience some heavy capital losses whilst retail property returns are set to go negative. Industrial property will receive the softest blow but overall, the property market is ominous with some substantial stressed selling in the pipeline.

Next year will be a good time for cash-in-hand investors to negotiate very fruitful deals.