Commercial real estate is hot property. At least the latest research suggests that an increasing number of property investors are turning to the area looking for reasonable returns.
European real estate in particular appears to be at the forefront of many buyers' minds, with total turnover in the area for the first six months of 2010 totalling EUR 45.1 billion. Breaking the figure down further still, it was retail investments which accounted for 35 per cent of this figure, research from CB Richard Ellis (CBRE) shows.
In contrast to the region's beleaguered residential market, which has been subjected to a tough time of late, retail property has seen activity increase by 15 per cent when compared to the second half of 2009. The growth was driven mainly by major Western European markets such as the UK and Germany, which dominated activity over the period. Together the two countries accounted for a massive 60 per cent of the total retail investment market.
Germany, in particular, saw retail investment activity double to EUR 4.1 billion, compared to the EUR 2.1 billion transacted in the last six months of 2009.
CBRE claims that this is in part due to the increase in the number of large shopping centre transactions carried out by investors. John Welham, head of European retail investment at CBRE, said that the research was reminiscent of the trend seen across the broader commercial real estate market. "Larger deal liquidity has improved this year, particularly in the European retail investment sector," he confirms. "This has been largely driven by international capital, with the majority of the EUR 100 million-plus deals completed so far this year being purchased by cross-border buyers."
International investors in Germany accounted for 52 per cent of retail investment activity - compared to 22 per cent in 2009 as a whole. He continues: "Investor demand
has remained predominantly focussed on the core end of the market with large high-quality shopping centres remaining a primary target for investors. "However, we are beginning to see some investors looking towards core-plus and value-add opportunities, therefore taking occupational and development risks in order to achieve target returns."
Global Outlook Positive
Additional research by the world's largest real estate consultancy paints a bright picture for the global prospects of commercial real estate, with a rise in activity around the globe. CBRE reports that, despite experiencing a slump for a two-year period following market highs in 2007, most countries are now able to report a stabilisation in activity.
Speaking to the Financial Times, Brett White, chief executive of CBRE, said that investment in the area is growing. "Virtually all global economies are in early stages of recovery and others such as China are in full-blown expansion phase, and [so] the majority of property markets are either flat or slightly improved," he explains. In 48 out of the 55 markets which CBRE tracks, rents are rising and yields are beginning to narrow. This rebound in fortunes has help to boost the organisation's second quarter results, Mr White said. Property sales rose globally by 61 per cent year-on-year.
One such sector where there has been activity is in the distressed side of the market.
A Royal Institution of Chartered Surveyors (RICS) survey, which took into account the views of its members, predicts that there will be an increase in the number of distressed sales in the next 12 months.
The body claims that changes to international regulations are likely to raise the cost for banks of holding commercial property. RICS defines distressed properties
as those with foreclosure orders or which are advertised for sale by their mortgagee, and which tend to fetch lower prices than their market value.
"Despite the "supposedly successful" European bank stress tests, worries over the health of the European banking system will continue to linger, propelling banks to manage down their problem loan books," RICS senior economist Oliver Gilmartin said in the report. "Indeed, changing international regulations are likely to start raising the cost of capital of holding commercial property on bank's balance sheets, which could be the trigger for increased listings in the coming year."
Investors will see the biggest rises in distressed commercial property assets in Portugal and Ireland, followed by the US, RICS said. Meanwhile, eight countries said there was a decline in the number of distressed properties coming to market during the second quarter compared to three months earlier, with the decline greatest in Brazil, Russia and India.
- Friday 20 August 2010