Looking for commercial property bargains

Experts size up the state of real estate markets - including the US, Europe, China, South Africa.

London's commercial property market is near the bottom of the cycle; the US commercial real estate sector will start improving in 2011.

This is according to John Cushman, chairman of the board at Cushman & Wakefield, a commercial real estate consultancy firm who was speaking about the global commercial property outlook at the South African Property Owners' Association (SAPOA) Convention recently.

Cushman said commercial real estate is getting as much as 9% in yields in emerging markets while property prices have fallen with vacancy rates rising globally in ratios of between 80% and 90% in some markets.

Commercial lenders globally are not keen and have not been keen to lend over the past two years, hence the collapse of the commercial property market, he said.

Cushman expects the US recession to last till 2009 and a commercial property recovery would be slow in the country as result.

In Europe, prime office rentals are expected to fall 15% by 2010.

In the US, vacancy rates were at 12.5% in the first quarter of 2009 while in Central America, vacancies are set to increase to 6%.

London vacancy rates were reported to be 7.1% in the first quarter of 2009 and prime rents down 28% in Central London. Cushman said the market is close to bottoming out.

In other parts of the world, India has serious issues of plummeting rents and lower demand for new space while Beijing has a lot of new commercial property stock, with rentals having fallen 25% in the first quarter of 2009.

This is an opportunity for savvy investors to get into the commercial property market as yields are attractive and will remain a preferred asset class globally, said Cushman.

For those investors looking for finance, he said transactions of under $100m are still easy to access in some markets and it's an advantage for investors with cash to snap up bargains in markets such as Beijing where there is lots of stock from which to choose.

In mature markets, those that fell first such at the UK will recover first providing a window of opportunities for investors and London is currently the investors' favourite destination for commercial property bargains, is his prediction.

In 18 months time, the US will be a good investment area as the market is stable and mature. Additional yields in this market will rise and the property prices in the US will stabilise before the emerging markets.

Investors will focus on mature markets when the world economy recovers, said Cushman.

Norbert Sasse, chief executive officer of Growthpoint Properties, said for now South Africa is "ok". The downturn in the economy started in October 2008 and the country is expected to come out of the recession in 2010/11.

He does not believe that South Africa's commercial property market will be as badly affected as other markets because the country's financial services are tightly controlled and property valuations have always been conservative and not net asset value driven as in some markets.

Managing executive of Nedbank Corporate Property Finance, Frank Berkeley, said the economy will get worse before things can improve again.

SA's banking system is good and that prevented the country from plunging further into the financial crisis compared to countries such as the US. South Africa is seen to be resilient and expected to survive the current economic situation, said Berkeley.

Article from: www.realestateweb.co.za