Investment in commercial property plummets 59 percent

17 Feb, 2009,

Global investment in commercial property fell 59 per cent in 2008 to $435bn down from 2007’s record total of $1,050bn. This was the lowest annual total since 2004 with a significant decline in investment from foreign investors. Figures in international property adviser Cushman & Wakefield’s Investment Atlas 2009 also predict that volumes will fall again this year, albeit marginally, to around $412bn.

The largest fall in 2008 was in North America with a 73 per cent drop in investment from $437bn to $116bn. As a result North America ceded its position as the top global investment target in 2007 and fell to third place in 2008 behind Europe and Asia.

The most popular investment destination

There were large falls in investment outside of North America, however, with Europe declining 52 per cent to $178bn (down from $367bn) and Asia declining 45 per cent to $131bn (down from $237bn). Latin America proved to be the most resilient market with investment falling by only 9 per cent to $8.9bn (down from $9.8bn). As the world’s most popular investment destination, Europe accounted for 41 per cent of all transactions followed by Asia with 30 per cent.

Slovak Republic

“Total institutional investment volume in 2008 was around € 119 million in the three main commercial sectors (office, retail and industrial) in Slovak Republic during 2008. This is a drop of approximately 60 %, greater than in any other Central European country,” says James Chapman, Partner and Head of Capital Markets Group at Cushman & Wakefield in Czech and Slovakia.

Country level

At a country level the USA accounted for 25 per cent of all global investment at $107.1bn. China, for the first time, overtook the UK as the second most popular destination with $50.3bn or 12 per cent of global investment. The UK accounted for 9 per cent or $37.1bn of investment with Japan and Germany each accounting for around 7 per cent, or $29.3bn and $28.8bn respectively.

Czech Rep. ranks 30^th out of the countries included in the report, coming higher than more established markets such as Portugal, Ireland, Switzerland and Luxembourg. Slovakia makes it on to the list in 41^st place.

David Hutchings, head of research, Cushman & Wakefield EMEA, said: “Although virtually all global markets had a decline in investment it’s been the mature markets which have suffered most. Emerging markets now account for 22 per cent of global investment when as recently as 2006 they only accounted for 9 per cent. China is by far the most dominant of these markets but Russia, India and Brazil all increased their share of investment coming in at 15^th, 16^th and 20^th overall.

Prices development

On average, mature markets are now probably at least half way through the pricing correction. Globally however, it is likely to be those countries which fell first that will also be the first to recover. The US and UK markets are likely to be favoured (certainly by the latter half of 2009) and investors are already identifying value opportunities there. We also expect to see a slight improvement in demand in France and possibly Germany later in 2009 and after further falls in activity in the next few months.

James Chapman says: “We expect further price correction in Central Europe throughout 2009. Investors want secure income streams. The CE region offers very few examples of deals that provide income secured on long leases as can be found in Western Europe. Estimates of a pricing recovery in 2009 are overly optimistic although we do expect an increase in activity in Q4.”

The change in property pricing globally has broadly followed a west to east drift starting in the US and UK and spreading through Eastern Europe, the Middle East and now most of Asia. Recently it has been emerging markets such as Ukraine, Mexico and Russia which have seen the most significant yield increases.

Market segments

Europe has been most affected by the re-pricing. All sectors have seen substantial yield shifts with Eastern Europe following the West. Shops have suffered somewhat less than offices and industrial but other retail types including shopping centres and retail warehouses are often seeing significant increases.

“The prime end of the market in the Czech Republic has seen a price readjustment of around 150-175 bps over the past 18 months. This applies to all sectors at present. There are very few completed transactions to confirm this opinion. However, we can base this on ongoing negotiations. In Slovakia, there has been a greater impact on pricing for shopping centres and industrial compared to Bratislava offices,” says James Chapman.

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