Wednesday, September 05, 2007

Commercial property "Dizzying heights" UK / Economist

It looks like the commercial real estate sector in London is as mad as the residential sector. This also fits perfect with the latest news like So Many Deals, So Much Debt ( The rise and possible fall from Harry Macklow in just 6 month) & Commercial Real Estate Prices May Drop 15% in Next Year that are coming from the US commercial real estate sector

Es scheint fast so als wenn es der gewerbliche Immobilienmarkt dem Wohungsmarkt in nichts nachsteht..... Das reiht sich zudem nahtlos an die letzten Meldungen wie z.B.So Many Deals, So Much Debt ( Die Geschichte eines Immobilienmoguls der binnen 6 Monaten alles zu verlieren droht) & Commercial Real Estate Prices May Drop 15% in Next Year die wir aus den USA zu hören bekommen.

London's office prices are starting to decline
THE names of the streets that neatly divide Canary Wharf—West India Avenue, Heron Quays—point to the remarkable story of the rise and fall of London's docks, once the world's busiest, and their reinvention as a global financial centre. The towers that now soar above them provide more than a parable of capitalism's cycles of creation and destruction and the notorious booms and busts of London's commercial-property market, but may also carry a far older lesson: that the higher one climbs the farther one can fall.

For much of this year London's commercial-property market has been scaling new heights. In April HSBC, a British bank, sold its office tower in Canary Wharf to Metrovacesa, a Spanish firm, for £1.1 billion, the most ever for a British building.

From the FT

Experts said this trend will mean banks will have to lend at higher rates. It also means some lenders have been stuck with loans on balance sheets. They include HSBC, which provided £800m of debt for Metrovacesa, the Spanish group, to buy its headquarters for £1.1bn. That was in April but HSBC has been unable to complete a CMBS refinancing..

..RBS estimates that European issuance was just EU1.5bn (£1bn) in July, compared with EU14.6bn the previous month and EU11.3bn in July 2006 - and spreads have risen.

This topped the £690m that Citigroup's London office was worth when it was
bought as part of a package by Royal Bank of Scotland in 2003. IPD, a data provider, reckons that office prices rose at an average rate of 10% a year during 2004 and 2005 before jumping 17% in 2006.

One reason for this surge in prices is that a shortage of office space has pushed rents to record levels. Hedge funds and investment banks have added thousands of employees, while developers, stung by previous busts, have been slow to build new space. One hedge fund is understood to have recently agreed to pay as much as £135 per square foot for swanky offices in St James's, making its new pad the priciest office in the world.

> But for how long? See the image of the future "City" skyline and compare this to the current one "Old Vs New Skyline" ......

> Aber für wie lange noch?Vergleicht bitte wie die zukünftige Londoner "City" Sklyline aussieht "Alte vs neue Skyline"

Deals such as these are for the very best offices. But even including humbler accommodation, London's West End still has the world's most expensive office space, according to Jones Lang LaSalle (JLL), a consultancy. Rents for swish offices in the West End have climbed 25% in the past 12 months to £1,200 ($2,400) per square metre. This is far higher than in any other financial and political centre. In Moscow rents run to about $1,500, JLL reckons; $1,400 in Hong Kong and $770 in midtown Manhattan.

> What will happen when the "boom" in the financial markets will end or even worse will reverse..... Should be good news for the sector......

> Was wird wohl passieren wenn der "Boom" an den weltweiten Finanzmärkten abebbt oder was einige für unmöglich halten siech gar nis negative umkehrt...... Das dürfte dem Sektor besonders gut bekommen ......

But the boom is now ending. On August 16th Stephen Hester, the chief executive of British Land, said he expected a fall in office prices. His firm, the biggest landlord in the City of London, is now one of the capital's biggest sellers of property. CB Richard Ellis, a consultancy, has meanwhile warned its clients to expect the prices of offices, shops and factories to fall

This is because investors have driven prices too high, too fast. IPD reckons that yields on commercial property have fallen from 6.8% at the end of 2001 to 4.5% by the end of June, which means that they are now 1.7 percentage points below the cost of borrowing (see chart).

Making matters worse is the turmoil in credit markets. This has not just driven up the cost of money, it has also made banks choosier about whom they lend to. Alastair Hughes of JLL says deals are taking longer to complete and some are falling apart as banks become more cautious.

Prices of the most expensive offices have not started falling yet, but those of shops and factories started to slip in July, according to IPD. Analysts at HSBC note that five of Britain's biggest institutional investors have reduced their property exposure since the start of the year, reversing a five-year flow of money into the sector.

Whether office prices will have a hard or soft landing is unclear. In the past investors in commercial property were somewhat insulated from market fluctuations because most tenants were locked into long-term leases. But this is no longer the case.

Between 1995 and 2005 the average lease length declined from 13 years to less than 5 years. If demand falters, then rents, and property values, may tumble as quickly as they have climbed.

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Blogger jmf said...

Bank of England Keeps Benchmark Interest Rate at 5.75 Percent

The Bank of England left the benchmark interest rate unchanged at a six-year high as it focused on curbing an increase in corporate borrowing costs that may crimp economic growth.

I think the next move will be a rate cut....

Consensus is still that they will raise to 6%, down from 6,25% just 4 weeks ago.....

4:12 AM  
Anonymous Anonymous said...

I guess you could do a somewhat less profitable carry trade between the UK and the Eurozone.


10:55 AM  
Anonymous Anonymous said...

Over to Barclays....

12:31 PM  

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