Posts tagged commercial real estate
Asia Pacific investment markets have not been immune to the global volatility, most recently with the eurozone debt crisis. In the Asia Pacific region, Hong Kong, Singapore, Japan, and Australia all saw transactions slow in Q3 2011, although China’s volume for both commercial property and land continued to increase, but at a far slower pace.
There have been some major governmental interventions through tighter property regulations over the last 12 months in places like Singapore, Hong Kong and China. These regulations have primarily been directed to control spiraling residential values and reduce speculation. Such policies include restrictions on the number of properties one family can own in one city, larger down payment requirements, higher stamp duty (tax) on the seller if the property is traded within three to five years of acquisition, as well as the introduction of annual property taxes. As a result, there has been some cooling on the transactional volumes of residential properties in all three markets. Anecdotally, there is some evidence of residential prices beginning to drop in China and there have been several cases of early buyers protesting developer price discounts to newer buyers. Hong Kong is beginning to see some softening in residential values, albeit after the last two years of major rises in value, and Singapore has been able to basically hold values to date. None of these government regulations have been directed toward the commercial property sector, which in markets like China, has residential developers moving into commercial development.
Aside from residential and commercial markets, key hotel markets in Asia have seen excellent growth. Best performing markets in Asia, which are projected to achieve double digit growth in RevPAR for 2011, include Singapore, Beijing and Hong Kong with continued but slower growth in 2012.
Singapore has seen some of the highest levels of supply growth in the region with a lot more in the pipeline. Beijing is forecasted to have the highest level of demand growth in 2011, whereas Hong Kong is expected to finish the year with the highest level of ADR growth. The ability to get debt financing for new hotel construction is becoming more difficult in China.
As the eurozone sovereign debt crisis has evolved, rapid rental rate increases have ceased in Singapore and Hong Kong and are now in a downward mode, with these markets having clearly peaked. Tokyo, Kuala Lumpur, Seoul, Ho Chi Minh City and Taipei are at or approaching the bottom of declining rent phases and will start to see higher rates. Jakarta, Manila, Shanghai and Beijing have already seen healthy rental increases but are forecast to see slower growth in 2012.
There are early signs of rental growth in Singapore and Hong Kong. Tokyo, Jakarta and Shanghai have reached the bottom and should start to see stronger, rising rents. Manila, Kuala Lumpur and Beijing retail rents have already seen reduced growth in recent quarters, and we expect further slowing.
Rental rates in Singapore and Hong Kong appear to have peaked, with a softening of rates forecast for 2012. In contrast, Tokyo industrial rates are close to the bottom with some increases anticipated over the coming quarters. Beijing and Shanghai have achieved some good rental growth and will likely see growth projection scale back in the coming period.
While the Americas and Europe still have higher annual transaction volumes for commercial property sales above US $10 million, there is a rising trend in commercial property transaction volumes in Asia and a sleeping giant (land sale transactions) that is not reflected in commercial building sales figures. The chart above displays transaction volumes in recent years. The high land transaction volumes in Asia reflect the high cost of land in major, developed, urban centers in Asia as well as the land sale activity to meet the urbanization of populations and the resulting huge demand for new real estate developments in growing, developing countries like China. In addition, Asia grabs 13 of the top 20 spots for the most active global property markets in the last 12 months (as of November 2011).
Major Trends in China
China now has the highest annual GDP growth rate of any major global economy (9.1%), the largest foreign currency reserves in the world (US $3.2 trillion), the second largest economy in the world (almost US $7 trillion), the largest standing military in the world (2.25 million), the largest population in the world (almost 1.34 billion) and was the winner of the most gold medals in the 2008 Olympics (51 gold medals).
European financial ministers must now kowtow to China for Chinese financial support to invest in the €1 trillion European Financial Stability Fund (EFSF) bond fund, needed to rescue Greece and the eurozone. US Treasury Secretary Timothy Geithner traveled to China to encourage the Chinese government to purchase US debt. It is difficult to miss how dramatically the global economic cards have turned in favor of the Chinese in the last few years.
The Chinese economy is predicted to grow 8.5% in 2012, the slowest growth rate in a decade. The world’s second biggest economy is cooling as weakness in developed nations softens exports, the property market cools and smaller businesses experience a credit squeeze. Unrest in the eurozone spells trouble for China, as Europe is now China’s largest overseas export market.
The 2012 Global Market Report is a unique tool that reviews and summarizes the real estate activities of the past year on more than 200 property markets worldwide. As a reference tool, it reviews values, economies, social factors and other conditions that impact a market.
Each analysis was completed by the NAI Global Member representing the given market. These local professionals are expert at reviewing their markets, identifying trends and reporting market activity. The NAI Global Member making the analysis for each market is identified and may be contacted for additional information. Most of the data in the Global Market Report was collected during the fourth quarter of 2011.
After nearly two years of steady improvement, Manhattan’s office market took a sideward step in Q3. The overall vacancy rate rose to 12.8%, a slight 10 basis point increase from the previous quarter and average asking rents rose to $48.92 per SF, a relatively small $0.28 increase from Q2.
Though leasing activity tends to be slower during the summer, the size and number of deals completed was down significantly from the previous two quarters. Only seven leases of 100,000 SF and greater were completed in Q3, compared with fifteen leases in Q2 and fourteen leases in Q1.
As had been the case in the previous two quarters, financial services and media companies signed the largest leases, accounting for 15 of the top 25 deals completed in Q3. The largest deal of the quarter was Pearson’s new lease for 270,000 SF at 330 Hudson Street, where the media company is consolidating operations from offices in New Jersey and Westchester.
Slowing economic growth (US GDP growth was 1.3% for Q2 2011), the S&P downgrade, precipitous stock market declines, continued weakness in the Euro Zone over debt default concerns in Greece, and still to be determined US deficit, debt and tax policies have led to a highly uncertain business environment. As a result, many organizations have delayed or stopped hiring and some have even begun to lay off personnel.
While New York City’s unemployment rate, currently at 8.7% (August 2011), is still 40 basis points below the US rate of 9.1%, the city’s unemployment rate has remained stagnant between 8.6% and 8.8% over the past year. As employment is the leading driver of growth in the office market, the lack of job growth will continue to impede Manhattan’s office market performance.
Despite record corporate profits and relatively favorable market conditions, some tenants are now delaying lease decisions because of the uncertain economic climate. Tenants are also continuing to consolidate their operations, mainly by consolidating office locations and embracing more efficient space plans that lower the SF per employee that they occupy.
As a result, it is likely that Manhattan’s office market performance will either remain flat or decline slightly, depending on economic conditions and how events in Washington DC and Europe play out in the coming months.
The investment sales market in Q3 was very active as institutional investors from across the globe continue to view the NYC office market as a highly desirable long-term investment. Year-to-date office transaction sales volume stood at approximately $9.47 billion, a 148% increase from the same point in 2010. With relatively few properties available for sale and historically low interest rates, competition is fierce with investors willing to purchase stabilized Manhattan properties in the 3% to 5% cap rate range, well below the US average cap rate of 7.4%.
Click here for NAI Global New York City’s full Q3 2011 report.
by Efram Ingberman, Director of Client Services for NAI Global New York City.
NAI Global, the premier network of commercial real estate firms and one of the largest real estate services providers worldwide, today announced that 84 NAI member firms and 132 NAI agents were named 2010 Power Brokers by CoStar Group, a leading information provider for the commercial real estate industry. NAI received a total of 216 Power Broker Awards across 56 markets for its performance in 2010. Only one other brokerage firm received more awards.
“NAI Global’s performance demonstrates the strength and depth of our organization throughout the United States,” said Jeffrey M. Finn, NAI Global’s President and Chief Executive Officer. ”This impressive showing confirms NAI Global’s leadership position and illustrates the capabilities of our professionals to provide best-in-class local market knowledge and real estate services in every market that we operate in. We are proud of our continued strong performance and appreciate the recognition of a leading independent organization like CoStar.”
CoStar Group tracks data on commercial properties and transactions throughout the U.S., U.K. and France. The Power Broker Awards are presented annually to the top brokerage firms and individual agents in major U.S. markets based on their leasing and sales transaction activities the prior year. The complete list of NAI member firms and agents receiving honors is available at http://www.costar.com/specialprograms/powerbrokers.aspx.
New NAI Global Reports Compare Commercial Property Prices, Trends & Business Practices in International Markets
NAI Global, the world’s premier network of commercial real estate firms and one of the largest real estate service providers worldwide, today announced the release of two new reports for corporate decision makers and investors that highlight global commercial real estate trends and provide insight into transaction and occupancy practices around the world.
NAI Global’s 2011 Global Property Prices & Trends report provides key demographic highlights along with current rental rates and investment yields for 140 global markets. The report provides prime net rental rates, investment yields and rental rate comparisons by property type for Office, Retail and Industrial properties.
The 2011 NAI Global International Property Guide provides insight into key local business customs and practices for 60 countries around the world. The International Property Guide details acquisition and tenant costs, tariffs and landlord and tenant responsibilities by region and country. The publication is especially useful for corporate executives and investors that have an occasional need in an unfamiliar country as well as those negotiating simultaneous deals across multiple international markets.
Both reports are available for free download on http://naiglobal.com/GlobalPubs/Default.aspx. Headquartered in Princeton, New Jersey, NAI Global manages a network of 350 offices and 5,000 professionals in 55 countries across the globe.
NAI Global reports significant gains were made in 2010, as the company re-imagined and reinvigorated services to better serve corporate space users’ changing needs.
“NAI Global continued to innovate and differentiate in 2010, realizing new service offerings and sales channels to help our clients achieve success in today’s uncertain market conditions,” said Jeffrey M. Finn, NAI Global President & CEO. “We look forward to a stronger 2011, built on a re-imagined and reinvigorated global network.”
Among NAI Global’s 2010 highlights:
- NAI Global has significantly expanded the Member network, with 15 new Member firms across the U.S., Latin America and Europe.
- In partnership with Harcourts International, NAI Global launched NAI Harcourts and began rapid expansion of the brand in Australia, New Zealand and South Africa. More than 40 offices came under the NAI Harcourts umbrella in 2010 with key offices in Auckland, Wellington, Christchurch, Melbourne, Adelaide and Perth. Several new offices are slated to join in the first quarter of 2011.
- NAI Global New York City doubled its operation in 2010, with expanded office space, new brokers joining the team, and enhanced service capabilities.
- NAI Global added more than 100 million square feet of space that is currently under property management, bringing the company up to 300+ million square feet property managed.
- NAI Global’s formed a Special Asset Solutions group in January 2010 to assist banks, financial institutions and special servicers with their distressed real estate assets. NAI was retained by two of the world’s largest banks as the preferred provider for disposition of distressed assets and REO. The group also was retained by one of the world’s largest private equity investors to assist in pre-acquisition analysis.
- Expanding on NAI Global’s successful Commercial Property PowerSale platform, introduced in 2009, NAI Global formed an alliance with NRC Realty & Capital LLC to offer online sealed-bid sales.
- NAI formed a Project Management Group based in NAI Global New York City’s office under the leadership of Fred Tuck. The Project Management Group provides turnkey end-to-end solutions for corporate clients.
- Building its expertise, NAI Global added strength and depth to its global management and Corporate Solutions teams, including Paul Danks, Senior Vice President of Corporate Services in the EMEA region, and Gus Poulopoulos, Executive Managing Director at NAI Global New York City.
If 2010 was a year marked by uncertainty, then 2011 should shed some much needed light on the future of CRE market. Despite the hurdles of the financial crisis and its impact on commercial real estate, recent data suggests that investors are looking to expand next year as the economy enters into a slow recovery.
Low interest rates, (spurred in large part by the fed’s new phase of quantitative easing), along with the resurgence of several asset classes such multifamily, indicate that investors may be willing to take on slightly more risk next year. Compromises on tax cuts and the historically wide spread between cap rates and interest rates should also aid investment and reduce uncertainty, creating opportunities for broker-dealers.
How will different CRE classes perform next year? To some extent, we have already begun to see a return to normalcy in some sectors such as industrial and multifamily. These markets have already begun to reset themselves and are poised for continued growth in 2011. Debt is coming back, and where the debt goes, the equity will follow.
Projected sales volumes for 2010 have also shown a promising improvement of ’09. This is not a shock considering how poorly the market performed in ’09, but it is still good news. CRE sales volumes are projected to increase over 50% or about $168 billion by the end of year, as investors who sat on the bench in 2009 returned to the market.
Not all sectors are benefitting equally from the return of debt. While financing is available for top-tier properties, it has been reserved mostly stable property types grounded by experienced owner/operators. Investors this year are still risk averse, with the majority of investment activity focused on stable investments in top tier, primary markets. Institutions and REITS have returned, but they remain cautious.
In 2011, assets located in primary markets will continue to experience the biggest boost from capital flows, while mid- and lower-tier assets in secondary and tertiary markets will need exceptionally strong owner/operators with a strong track record of success to gain financing. The recovery of these markets is tethered to job creation, so they will require the economy to improve before these assets can fully recover.
At the end of the day, there will always be appetite for commercial properties that provide investors with good value. Assets that bring cash flows, such as office, healthcare and multifamily, have already seen increased demand in both primary and secondary markets. With new supply limited, there is a real opportunity for buyers to invest in the CRE at the equity and mezzanine levels while the gap between interest rates and cap rates remains historically wide. Debt capital is readily available for projects that can prove long term value with experienced owner/operators that have a track record of success.
Overall, the future is looking up for the CRE market next year, as more investors take advantage of market conditions and an improving economy. While risk appetites remain low, early movers looking to broaden their investment strategy will begin to look outside of the top tier markets. These players will be the first to capitalize on the next round of price corrections and reap larger rewards in the years ahead. Brokers with strong lending relationships and experienced development partners will be poised to take advantage and emerge as winners in the next phase of recovery.
Matthew McManus is Chairman of Philadelphia-based NAI Bluestone Real Estate Capital, LLC.