Commercial property sales dry up

AUSTRALIAN commercial property sales have all but dried up, according to a leading report.

The latest Real Capital Analytics Global Trend data also shows global commercial property sales have dropped 57%.

 

According to RCA, global commercial property sales totalled $US388 billion leading up to August – down 57% when compared to the same period a year ago.

 

And it found the pace of transactions continues to slow and preliminary data for in the third quarter of 2008 shows an even steeper decline of 64% compared to the time a year earlier.

 

RCA found Australia experienced the greatest drop in investment throughout the year, tumbling 74% in volume to rival the US where transaction volumes have fallen 77% in the year to August.

 

Australian commercial property sales have so far totalled just $US6.7 billion – 87% below the same period a year ago.

 

And it is not for the lack of properties on the market because there are currently over $A15 billion worth of assets for sale.

 

According to JPMorgan, some of these assets are;

·         Stockland’s $A350 million 135 King St and Colonial Centre in Sydney CBD

·         $A900 million GPT’s Four Points by Sheraton Darling Harbour Hotel and Voyages Resorts portfolio

·         $A2.6 billion Centro Australia Wholesale Fund

·         Brookfield Multiplex’s $A630 million City Square Project, Perth

·         and FKP’s $A140 million 120 Edward Street, Brisbane and $A220 million Energex Building project, Fortitude Valley, Brisbane, to name a few.

 

In fact, some deals for such as the ASX Building in Bridge St, Sydney and Shell House at 1 Spring St, Melbourne have been fallen over because the owner Record Realty did not want sell at a lower price.

 

So far this year, some of the successful deals include;

• Morgan Stanley’s $60 million sale of the Royal Pines Resort to RACV;
• German fund manager Real I.S paying $A104.5 million for the Commonwealth Bank office campus at 10 Dawn Fraser Avenue in Sydney Olympic Park;
• Charter Hall’s Core Plus Office Fund buying a 50% freehold interest in 570 Bourke Street, Melbourne from the Charter Hall Property Trust, for $72.5 million.
• AMP Capital Investors’ purchase of 30 the Esplanade, Perth from GE Real Estate for $40 million
• The Seahaven Resort in Noosa snapped for $120 million by Consolidated Properties and United Kingdom based investment group BlueSky Capital.
• HIGHER cost of debt has shaved off some of Mirvac’s profit for the sale of a 50% interest in 101 Miller and Greenwood Plaza.
• Mirvac’s half a stake sale in 101 and 103 Miller Street, North Sydney to Eureka Funds Management for $230.1 million

Meanwhile RCA figures show sales in the US have dived 77% in the year to date to $US105.5 billion and is 80% below the same period a year ago. In other parts of the Americas, transaction activity in Canada and throughout Latin America has taken a sharp turn down in recent months.

 

Source: Real Capital Analytics

 

Similarly, sales in East Asia, China and Japan are falling quickly. Some, but not all, of the decline in transactions in China results from new regulations in force earlier this year that were intended to slow speculation and land hoarding.

 

Another significant change in recent months has been the sharp drop-off in property sales in Asia Pacific. While off 18% year to date through August, third quarter sales volume is estimated to have plummeted 68% compared to third quarter in 2007.

 

The drop-off in property sales in EMEA was 46% through August, with Eastern Europe and the Middle East the only regions globally recording gains. The UK has experienced a 55% drop in sales through August and appears to be slowing even further.

 

RCA said recent data in Western Europe suggest that the pace of transactions was stabilizing, but the full effects of the most recent turbulence in the financial markets may negate that.

 

Transaction falls were recorded across all property sectors with offices and hotel assets experiencing the greatest contraction so far this year followed by retail, industrial and apartment sales.

 

Across the globe, office transaction activity fell 65% to $US136 billion whilst hotel declined 71% to $US26.5 billion.

 

Source: Real Capital Analytics

 

RCA said property prices are also weakening in most parts of the globe.

 

“Early on, investors flocked to Asia, thinking it might be immune to the credit crunch and driving property yields lower, however cap rates on recent transactions are now up 25 bps.

 

“Yields continue to trend higher and have risen an average of 50 bps in the Americas and EMEA since the start of the credit crunch just over a year ago. While cap rates in EMEA spiked relatively quickly, the journey up in the Americas has been more gradual,”

 

“However, the increases in the Americas have accelerated recently, while appearing to stabilize a bit in EMEA. The increase in yields in the Americas and EMEA of 50 bps is a broad average and yields are up far more in many secondary markets or for lesser quality properties.

 

“Even that is a generalization, as yields for prime offices in London are up by 100 bps. One generalization that will hold true across all markets globally is that cap rates face continued if not greater upward pressure over the near term,” RCA said.

 

And the RCA said the property markets are in for some troubling times.

 

“September usually sets the pace of the investment market through year-end. And if this September is any indication, the property markets are in for some troubling times.

 

“The credit crunch that has been impeding deal flow in the US and Europe is now spreading throughout Asia and erupting into a full-blown financial crisis in the West. In the course of the month, some of the largest lenders to the commercial real estate industry have fallen: Lehman, Hypo, Wachovia, Fortis, AIG, HBOS, Merrill Lynch.

 

“Their downfall not only leaves a void for those seeking to finance a property, but represents tens of billions of dollars in property and mortgages that must be liquidated. Those assets will join tens of billions of other properties currently for sale by owners that are under increasing financial pressure,” RCA concluded.

 

Australian Property Journal