By William Kemble-Diaz
Jones Lang LaSalle one of the world’s biggest property services firms, said on Monday that it expected European commercial property transactions to fall by up to a quarter in 2008 after a 13 percent drop this year. In an interview with Reuters, Tony Horrell, the firm’s head of European capital markets, said fallout from the U.S. subprime crisis and the exodus of many debt-funded buyers had killed off hopes for another record year of commercial property trading.
“Even though at the three-quarter stage we were on a par with 2006, the last quarter has slowed down quite a lot, which means that this year we will end up with (volumes of) around 220 billion euros ($322.6 billion),” Horrell said.
He said 2008 volumes were likely to slip by a further 20 to 25 percent to around 170-180 billion euros because there were now as many sellers as buyers on average across the region, whereas beforehand there had been five buyers chasing every deal.
According to Jones Lang LaSalle, buying and selling of European commercial real estate such as shopping malls and office blocks hit a record 253 billion euros in 2006. Horrell said estate agent hopes for a strong start to the year were probably “wishful thinking.” He said UK real estate had so far been adversely affected the most by the global credit crunch, mainly because the country’s real estate market had already been slowing after a succession of interest-rate hikes. But there were now also signs of slowing activity and falling property values in Spain, Sweden and central Europe, while Germany was no longer seeing any large portfolio transactions, even though it was set for another record year, he said. Despite this, Horrell said he saw little scope for job losses within the European property industry because the market was slowing “from pretty heady levels” and has been underresourced in recent years.
Horrell said European property markets were going through a transition phase and had the potential to stabilise in three to six months because there was “at least 40 to 50 billion euros” in dedicated funds or held by cash-rich equity investors waiting for an opportunity to invest in European real estate.
“It can’t sit on the sidelines forever,” he said. “So as long as you see some price readjustment, then I think that money will come back in.” Britain’s commercial property market - Europe’s biggest - was a case in point, he said, because a pricing adjustment was already well underway. Average yields - which measure rental income relative to a property’s capital value - were on track to reach 5.25 percent by the beginning of next year for prime offices in London’s City financial district, from a nadir of about 4.5 percent, he said.
A similar adjustment was probably happening with UK shopping malls, he said. Spanish commercial property prices also had some potential to find a floor, Horrell said, citing bank Santander’s recent sale and lease-back of properties for a combined 2.5 billion euros. Horrell said part of that deal had been struck at a 5 percent yield—compared with around 4 percent, which is where the market had probably been before the U.S. subprime fallout.
A spokesman for Santander could not be immediately reached for comment. “I know a lot of overseas investors who would like to buy properties in Spain,” Horrell said, citing the extent to which private local investors have until recently dominated the market and driven up prices. “It’s just been too tight to get in, so it will reach it’s level where that’s fine too."
Europe property trade to dip 25 pct 2008-JLL
Di Tony Horrell - 04/12/2007, 13:56
By William Kemble-Diaz
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