Global property investment expected to slide further

Source : Business Times - 12 Feb 2009

Global real estate spending on office buildings, stores and apartments may fall another 5.3 per cent this year to US$412 billion as lenders keep a tight rein on credit, property broker Cushman & Wakefield Inc said.

Lack of credit pushed commercial property acquisitions down 59 per cent to US$435 billion last year, the lowest since 2004, New York-based Cushman said.

‘Although virtually all global markets had a decline in investment, it’s been the mature markets which have suffered most,’ David Hutchings, Cushman’s London-based head of research for Europe, the Middle East and Africa, said in a statement yesterday. ‘Emerging markets now account for 22 per cent of global investment when as recently as 2006 they only accounted for 9 per cent.’

Banks have been reluctant to lend or refinance real estate loans as they try to conserve cash after losses and write-downs totalling US$1.1 trillion. Recessions in the US and some European countries have crimped demand for office and retail space, causing values to drop because landlords cannot command as much in rent.

Commercial property values have fallen most in Europe, where yields rose 111 basis points, compared with an average 31 basis point increase in North America, Cushman said. The yield on property moves inversely to prices. One basis point is 0.01 percentage point.

‘Pricing in many countries at the market peak was aggressive and became divorced from the reality of underlying growth and income,’ Mr Hutchings said. ‘Pricing may now be becoming too conservative in some markets.’