Property Market To Soften

Property prices are set to soften and demand will weaken as the Singapore economy slows down, Minister for National Development Mah Bow Tan said on Wednesday evening.

Private housing prices have declined by 2.4 per cent in the third quarter of this year, and further price movements will 'depend on the severity of the economic slowdown', he added. Speaking at the 49th anniversary dinner of the Real Estate Developers' Association of Singapore (REDAS) at the Shangri-La Hotel, Mr Mah said: 'Going forward, price movements will depend on the ability of the industry to make adjustments in response to the changes in economic conditions.'

The good news is that home-ownership rate is high in Singapore - at more than 90 per cent - and the government has an important role in ensuring the long-term stability and smooth functioning of the property market, he said. Among the measures it should take, he said, is to guard against 'irrational market behaviour such as excessive speculation that is not in sync with economic fundamentals.'

But there are limits to what the government can do. The government cannot, for example, dictate to banks that they should extend loans to companies or individuals with weak financial standing. It also cannot work against market forces and try to prop up property prices artificially.

Mr Mah explained: 'Such efforts are not sustainable and will not be beneficial to the health of the property market in the long-run. Any measure seen to be knee-jerk or excessive might even weigh market sentiment down further.

'It is in our interest to ensure that the property prices move in line with economic fundamentals, as it affects home ownership, asset values, retirement savings and other sectors of the economy.'

Source: The Straits Times

Property Slump Hits NY Commercial Market

Market headed for worst year since 2004 as deals plunge 61% through Oct

(NEW YORK) New York City commercial real estate transactions plunged 61 per cent this year through October as the global credit crisis roiled lending and sidelined buyers.

About US$17 billion of transactions have closed so far and the market is headed for its worst year since 2004, according to data from Real Capital Analytics Inc of New York. Sellers have made 237 deals of US$5 million or more, a four-year low in a market that posted a record US$51 billion in sales last year.

'The banks are not lending, and most of them are saying we're done for the year,' said Scott Latham, executive vice-president for New York investment sales at Cushman & Wakefield Inc, the largest closely held commercial brokerage. 'In all likelihood, you will see next to no transactions between now and the end of the year.'

The property recession that began in housing during 2006 is spreading to the commercial market. About 85 per cent of domestic banks tightened lending standards on commercial and industrial loans to large and mid-sized firms in the past three months, the highest since the Federal Reserve's Senior Loan Officer Survey began in 1991, the Fed said on Monday. Financial firms have recorded writedowns and losses of more than US$680 billion.

The office market will likely get worse next year and may not improve for at least another year, said Andrew Simon, executive managing director for the New York City office of NAI Global, a worldwide network of 325 independent commercial property brokerages.

The bankruptcy of Lehman Brothers Holdings Inc, the takeover of Merrill Lynch & Co and the city comptroller's forecast that New York may lose as many as 165,000 jobs are also weighing on the market. 'I don't think the first half of 2009 is going to be very rosy,' said Mr Simon. 'I believe you're talking about a year from now before you see more movement toward normalcy.'

Buyers and sellers are looking for a bottom, he said. 'People are going to be waiting on the sidelines until a floor is established,' said Mr Simon. 'People aren't going to sell unless they have to sell. Unless that floor is established you will not see significant sales.' With no let-up in sight for the property industry, investors have dumped real estate investment trusts focusing on offices.

The 14-member Bloomberg Office Reit Index lost 43 per cent in the 12 months through October, led by Maguire Properties Inc and SL Green Realty Corp, which together control almost 50 million square feet of office space in the Los Angeles and New York metropolitan areas.

SL Green, the biggest owner of Manhattan office buildings, has dropped 65 per cent in the 12 months through October. Maguire, the largest owner of downtown Los Angeles office towers, has plunged 87 per cent and is the worst performer in the index. Vornado Realty Trust said on Tuesday that the credit crisis and the slowing economy may lower profits in future quarters, while reducing the volume of real estate sales and property values.

'Our existing real estate portfolio may be affected by tenant bankruptcies, store closures, lower occupancy and effective rents', which may cut net income, Vornado said. Circuit City Stores Inc, the electronics retailer that announced 155 store closings this week, leases 12 locations from Vornado and pays US$8.1 million in annual rent, Vornado said in a regulatory filing.

Global commercial sales fell 57 per cent this year through August, Real Capital said in an Oct 9 report. In the third-quarter, they fell 64 per cent from the same period a year ago, according to preliminary data from the company. In the US, sales have declined 72 per cent this year through October, the biggest drop since the firm's recordkeeping began in 2001, Real Capital said. Starting in 2004, property investors, fuelled by cheap and abundant debt, began an unprecedented run to US$514 billion of US deals last year, said Dan Fasulo, Real Capital's director of market analysis.

'I think it will be a while before we get to that figure again,' he said. 'We're going to do less than half of that in 2008.' September was 'disastrous' for the financial and commercial property markets, Real Capital said. Office sales totalled US$13.4 billion in the third quarter in the US, the lowest since the first quarter of 2004. Sales for all this year are not likely to exceed the volume of the first quarter of last year.

'Until we have some kind of watershed transaction that gives people a sense of what the market is, you're not going to see a lot of transactions,' Lynne Sagalyn, director of the Paul Milstein Center for Real Estate at Columbia University, said in an interview. Sales involving New York real estate investor Harry Macklowe, perhaps commercial real estate's most prominent casualty of the credit crisis, accounted for more than two- fifths of New York's year-to-date dollar figure through October.

Mr Macklowe paid US$6 billion last year for seven Midtown skyscrapers, primarily using short term debt. His lender, Deutsche Bank AG, took control of the towers in February and sold five of them for US$2.83 billion. Mr Macklowe also sold the General Motors Building and three other buildings for US$3.97 billion to Mortimer Zuckerman's Boston Properties Inc. Second-quarter commercial and multi-family mortgage originations tumbled 63 per cent in the second quarter from the same period a year earlier, according to the Mortgage Bankers Association (MBA) in Washington.

Office property loans fell 65 per cent, retail property loans fell 63 per cent and industrial property loans slid 57 per cent, the MBA said. Loans slated for the commercial mortgage- backed securities market declined 98 per cent in the second quarter from a year earlier, the group said. Financing of deals by so-called portfolio lenders, companies such as commercial banks and life insurers that originate loans and keep them on their books, was also down. Loans by banks fell 29 percent and 27 percent for insurers, the MBA said.

The few deals being made usually require sellers to either provide financing or allow buyers to take over their existing loans, said Howard Michaels, chairman of the New York-based Carlton Group LLC, a real estate investment banking firm, which arranged the recapitalisation of the GM Building for Mr Macklowe in 2004, and Chicago's Sears Tower last year.

At 1372 Broadway, a 20-storey pre-World War I office building in New York's Garment District, buyer Lloyd Goldman received financing for 86 per cent of the tower's cost from the seller, Wachovia Corp, the lender being acquired by Wells Fargo & Co.

Wachovia and partner SL Green sold the building for US$274 million, US$61 million less than what they paid a year before, according to city records. The price dropped US$20 million from the signing of the contract in July and last month's closing, said people familiar with the transaction. A standoff between sellers and buyers over price appears to be stalling the market, said Mr Michaels, who arranged financing for the 1372 Broadway sale.

'Most people are waiting to see how 2009 shakes out. Until then, nobody's putting any buildings on the market unless they have to,' he said. 'I don't think that anybody would voluntarily sell into this market right now.' Two properties remain on the market five months after they went up for sale. They are: Worldwide Plaza on Eighth Avenue, a 1.7 million square-foot tower, and 1540 Broadway in Times Square, the former Bertelsmann Building.

The seller of both buildings: Harry Macklowe's lender, Deutsche

Source : The Business Times, November 6, 2008

Office Rent Review 2008Q3

OFFICE RENTS PLATEAU AS OCCUPANCY LEVELS EASE IN THE QUARTER

Against a backdrop of wider financial turmoil, offices rents have peaked. The slowing rental growth trend that we had first observed starting from Q1 08 appears to have run its course, such that both Grade A and prime rents remained static at $18.80 psf/month and $16.10 psf/month over the past quarter. Landlords are adopting more reasonable asking rents, although in the immediate term occupiers will still face rentals that are at all-time highs. We will continue to monitor the trend over the next few months to see how swiftly the fast approaching new office supply allied with slowing demand will combine to bring down rents from today’s levels.

Grade A vacancy rose to 1.2% in Q3 08 up from 0.6% in the past two quarters. This is the first time in eight quarters (since Q3 06) that Grade A vacancy has risen above the 1.0% mark. There were slight increases in vacancy rates for most micromarkets in Q3 08 – the exception being Orchard Road, which saw a one percentage point drop in vacancy due to higher occupancy at the newly completed Visioncrest and at Starhub Centre.

Whilst office leasing momentum has eased in the past few months, particularly for prime offices, office demand is still in positive territory. While occupiers are understandably cautious given the challenging financial and economic environment, a number of recently announced pre-commitments demonstrate that there is underlying confidence in Singapore’s relative position. JP Morgan renewed and expanded its premises at Capital Tower, taking a further 40,000 sf. Advertising giant, WPP pre-committed to lease the transitional office development at Land Parcel B Scotts/Anthony Road for 14 years. At MBFC Tower Two, three foreign companies – BHP Billiton, Macquarie Group and Murex South-east Asia have pre-leased some 241,000 sf. This boosted occupancy of the first phase of Marina Bay Financial Centre to an impressive 65.6%, almost two years ahead of its completion in Q2 2010. Many occupiers are, however, chasing lower costs and are relocating to decentralised locations, built-to-suit facilities and business park space.

CBRE estimates the confirmed new office supply over the next five years at 10.64 million sf. We do not consider this volume of supply excessive based on our estimated average annual demand of 1.6 million sf. It should also be noted that approximately 26% of the new supply has already been pre-committed.

No office development sites were awarded in the quarter. In the year-to-date only about $882.8 million worth of land was awarded for office use compared to $5.55 billion as at Q3 07, reflecting a 84.1% y-o-y decrease. We foresee limited appetite for further speculative office development given the outlook for falling rents, uncertainty on whether the current demand will hold up and the difficulties developers have in securing development financing.

Two transitional office parcels were launched in the quarter. A 66,484-sf parcel located at Mohamed Sultan Road and a 126,355-sf plot at Mountbatten Road. We expect few bids for the two parcels. There were eight transitional sites launched since July 2007. Some 645,000 sf (NLA) of offices will come on-stream in 2008–2009 from the five transitional office sites awarded. In light of the current situation, we believe that the government should review the necessity of launching more transitional offices in the immediate future. Another land tender will close at Ophir Road site in the final quarter of 2008.

Market fundamentals have changed and sentiments have deteriorated. Pre-commitment rent levels are likely to come under pressure as occupiers factored in the widely anticipated softening of the market. We had earlier anticipated rents would only soften beyond 2010. With the events of the past few weeks, we believe that the correction has been fast-forwarded to early 2009. The magnitude of rental correction will to an extent be contingent on external factors including the prospect of recession in the US and Europe and the outcome of attempts to shore up the financial crisis. Singapore’s office market appears better placed than many markets going into a period of economic slowdown, but it is not insulated.

Source: CB Richard Ellis