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Deutsche Bank’s US Commercial Property Loans Are a Growing Drag on Its Profits

Javier Valdez — Wed, 21 Aug 2024 12:35:26 +0000

The dent in Deutsche Bank AG’s profitability from US commercial property loans hit a new high last quarter, with the lender warning that offices are unlikely to see an improvement anytime soon.

Credit provisions for the asset class rose to a peak for data going back to 2022, almost doubling from a year earlier, according to an investor presentation published Thursday. While Deutsche Bank is “seeing some stabilization” in the broader US commercial real estate market, the office part of that will likely “continue to be impacted” for the rest of the year, Chief Financial Officer James von Moltke said on a call with fixed-income investors on the same day.

The remarks highlight how Deutsche Bank’s unique position as one of the biggest European lenders to developers of US commercial real estate — and offices in particular — will continue to be a sore point for investors. Even though its US CRE exposure accounts for only about 3% of its total loan book, it was the source for more than a quarter of the bank’s credit provisions in the last three-months period.

The average loan-to-value in its US office loan segment remained at 81% as of end-June, the bank said. That compares with an average CRE portfolio LTV between 50% and 60% at large German banks last year, according to a report from Fitch Ratings.

A previously expected recovery in the asset class hasn’t yet materialized, Deutsche Bank said during its earnings presentation on Wednesday, causing it to give a worsened outlook for full-year credit provisions. Shares tanked as much as 9%.

Elsewhere, New York Community Bancorp’s stock fell as much as 17% after reporting provisions for loan losses that were higher than every analyst’s estimate. That was linked to increasing charge-offs, primarily office loans, it said.

The commercial property market has been hard hit by interest rate rises, which have raised borrowing costs. US offices are among the worst performers as they have also experienced rising vacancies on the back of higher rates of remote working.

Source: Yahoo

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San Francisco Office Building to Sell for Almost 80% Discount

Fred Aguilar — Sat, 17 Aug 2024 12:35:31 +0000

BH Properties Deal Reflects Weaker Property Valuations

A Southern California investor appears to be extending its Bay Area buying spree by closing in on a discounted deal for an office in one of the nation’s hardest hit real estate markets in the wake of the pandemic.

Los Angeles-based BH Properties intends to pay $13.5 million for a 111,000-square-foot office in downtown San Francisco at 989 Market St. in a deal expected to close next week, people familiar with the transaction tell CoStar News. That price would mark a nearly 80% discount to the $61.2 million that the office sold for about a decade ago, when ABS Real Estate Investments acquired the site. The deal hasn’t closed so nothing is final.

Office valuations are declining across the country as investors grapple with higher interest rates and low tenant demand. Properties in the U.S. West have been among the hardest hit in recent years, with dense California markets such as San Francisco and Los Angeles dealing with a reduced workforce.

Valuations for office buildings in the U.S. West are off about 5.1% in the past year, according to CoStar Group’s most recent Commercial Repeat-Sale Indices. The report showed the region posted the second greatest price declines during the second quarter, with office valuations off 1.8% from the first quarter, slightly better than the 1.9% decline seen in the U.S. South.

Across all property types, the West came in last in terms of second quarter price performance. Countrywide, the office sector was the hardest hit during the second quarter with valuations off 2.9% from the prior quarter and 8.1% from the same quarter last year.

The downtown San Francisco office is the latest to showcase dwindling price devaluations in the region; San Francisco offices lost nearly 10% in value in the last year, trailing only San Jose for the largest decline in California, according to CoStar data, and ranking among the hardest hit in the country.

Diminishing Valuations

The largely vacant office counts just Blick Arts Materials as a tenant, according to CoStar data; the company occupies 13,000 square feet.

The deal, reported earlier by the San Francisco Chronicle, marks BH Properties’ third acquisition in the Bay Area in the past year. Last June, it shelled out $65 million for Oakland’s 60-acre Holy Names University campus, and two months later, it paid roughly the same amount for the 200,000-square-foot Anchorage Square shopping center in San Francisco. The mall last sold for $95.5 million in 2004.

BH Properties paid about $123 per square foot for its latest Bay Area buy, lower than some of the discounted office deals to take place in San Francisco in recent months.

Last week, England-based Wellington College paid $23.5 million, or $371 per square foot, for 99 Rhode Island St. with plans to turn Airbnb’s former headquarters into a new school. Earlier this year, New York Life Insurance bought the 70,000-square-foot 410 Townsend for $22 million, or $278 per square foot, according to previous reporting by CoStar News.

San Francisco’s vacancy rate sharply rose in the wake of the pandemic and it remains at a historic high of 22.2%, largely caused by remote work trends and technology tenant reductions. That, coupled with higher interest rates and a decreased lending appetite for offices across the country, has served as a downward force on office values.

In a recent example, a national lender is taking over a vacant 449,000-square-foot campus at 350-380 Ellis St. elsewhere in the Bay Area in Mountain View, and pegged the valuation of the office campus at nearly $121 million, a far cry from the $357.5 million price that the property sold for in 2021.

Source: Costar

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Eight Golden Rules for Property Investors in 2024

Sean Potter — Sat, 10 Feb 2024 12:38:41 +0000

An expert has shared his eight steps to help boost chances of securing capital growth when investing in property this year.

Jonathan Rolande, the founder of House Buy Fast, says early signs indicate “growing positivity across the market”.

He adds: “We’ve seen three consecutive months of house price rises and it looks as if the repeated interest rate increases which dogged the market in 2023 are over. This will rightly encourage people to look again at property as an area to invest in.”

· Start by checking the demographics. Areas with more older people tend to hold prices well but don’t have as much potential for growth as there are fewer movers.

· Next, look at the schools, the building of a new school or college or an existing one that has improved its ratings is a very good sign. Many buyers and renters will pay more to live near a good educational institute.

· Thirdly, check the ratios – how many properties are on the market in the area and of those, how many are sold. 30 per cent-plus sold is a good indicator. Check rentals too, there should be no more than a handful of properties available to let in the postcode area.

· Four, investigate what prices have done in the past. It’s not a sure-fire way to predict the future but areas that have exceeded past increases or haven’t fallen as far in previous dips should be at the top of your list.

· Take note of crime rates the lower the better.

· Six, investigate any developments nearby. Developers investing millions into property in the area is a very good sign, just be aware that this can have a negative effect – the area could be flooded with buy-to-let, driving prices down.

· Seven, assess if the area is prone to flooding. Those which can be tricky but don’t be too alarmed by online searches. Many areas show a possibility of flooding at some time in the future.

· Finally, ask can you add value? With the right permissions and vision there are ways to improve properties to create more income in rent and the capital value. Moving a kitchen to the lounge area frees up a room, extending into the roof space or garden, changing the planning use or adding a garage can add value.”

Source: Property Investor Today

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UK Investors Pull Money From Property Funds in November -Calastone

Dave Howard Edwards — Thu, 14 Dec 2023 11:03:42 +0000

LONDON, Dec 6 (Reuters) – UK investors pulled money from real estate funds for the second month running in November, but sentiment towards equity and fixed-income funds improved, fund network Calastone said on Wednesday.

Investors withdrew 88 million pounds ($110.70 million) from real estate funds overall last month, making it the second-worst month of the year for property funds after August’s 121 million-pound net outflow, according to Calastone’s data.

The property outflows were driven by a decrease in buy orders, while sell orders remained almost unchanged, Calastone said.

Property faces a “triple squeeze” of weak tenant demand in commercial property, high interest rates hitting capital values, and high finance costs hurting profit margins, said Edward Glyn, head of global markets at Calastone.

Real estate firms around the world have come under strain as higher interest rates have driven up the cost of funding.

The Bank of England raised interest rates 14 times in a row between December 2021 and August this year. It paused its increases in September.

Jefferies analysts said in September that London’s office market was in a “rental recession” as empty workspace hit a 30-year high.

“Until we see a decisive turn in the UK’s growth prospects, commercial property is likely to continue to struggle,” Glyn said.

UK investors showed more confidence in equity funds, which posted net inflows of 449 million pounds in November, Calastone said. This was a tentative turnaround in the wake of 4.5 billion pounds of overall outflows between May and October, Calastone said.

There were still outflows in ESG equity funds, which lost a net 524 million pounds in November. But fixed-income posted “modest” net inflows for the first time in four months, gaining 256 million pounds overall, Calastone said, attributing the change to a decline in bond yields.

Source : Reuters

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Investors Go Cool on UK Property Market

Javier Valdez — Wed, 22 Nov 2023 14:24:35 +0000

Two-thirds of institutional real estate investors are reconsidering their UK ventures due to market conditions, according to research by insurance broker Gallagher.

Gallaher found that 64% of UK real estate investors are considering shifting their investment abroad; 44% have pulled investments, while 21% have had to repurpose developments (mostly switching from commercial to residential).

The study of 300 UK institutional real estate investors responsible for their company’s asset management strategy found a number of factors – including changing working patterns, interest rate rises and inflationary pressures – were threatening their investments. Most (86%) said projects in which they had invested had experienced significant disruption in the last five years, with 37% of investors saying they believed the level of risk in investing in the UK cities had increased since the pandemic.

Among the factors causing disruption, the most common answer was supply chain issues (41%), 19% cited a change in city centre working patterns and 29% said a fall in demand for city developments in the UK had caused the disruption. Many are having to review their investment and plans for projects even before construction has been completed.

According to Gallagher, its survey raises concerns about the viability and growing risk, with 34% saying their investments stood to make a loss and 45% saying they will not achieve the returns previously expected.

The survey revealed that 44% of investors consider UK property to be no longer profitable enough. This lack of demand is exacerbated by the UK’s empty property problem with more than 650,000 buildings (according to Leeds Building Society) currently unoccupied.

Gallagher director Dominic Lion said: “Real estate disruption clearly poses a severe threat to the future of investment in UK cities, with key institutional investors facing greater risk. Ongoing delays, changing working patterns and rising interest rates are making it difficult for investors and developers to see a tangible reward on current projects, making the UK less attractive for future investment and investors risk profiles changing more regularly.

“A shift in working habits – from office to hybrid – following the Covid-19 pandemic is evidently decreasing demand for commercial development in UK cities, as projects begin repurposing sites from commercial to residential. This trend is actively impacting returns for firms, and driving a significant shift in investments moving overseas.”

Source : TheConstructionIndex

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Is UK Real Estate Back in Vogue With Global Investors?

Jeffery Blair — Tue, 17 Oct 2023 12:42:17 +0000

The tipping point in United Kingdom real estate may have been reached: British Land has reportedly put the Meadowhall mall in Sheffield, in the North of England, up for sale. A price tag of £750 million is likely attached.

Meadowhall is an 1.5-million-square-foot mall that is 98% occupied and anchored by Marks & Spencer and Primark. The owners say its footfall is 24 million people a year.

There have been no outright sales of super-regional United Kingdom shopping hubs, those with three or more anchors that are also bigger than 800,000 square, for several years and no sales of United Kingdom property in any sector above £500 million in 2023. That is largely thanks to the depressed investment market that has been in place since the Liz Truss government’s mini Budget, where it laid out its fiscal priorities, last September crashed the pound and sparked an ongoing period of interest rate rises.

While it is unclear whether BL and its joint owner, the Norwegian sovereign wealth fund Norges, will proceed with a sale, it has left the market asking whether the United Kingdom is returning to a point where such large-scale assets are becoming more attractive to buyers, and in turn whether the United Kingdom itself is looking more appealing to large-scale global investors.

As Oli Horton, partner at adviser GCW, points out that it’s a major test of how interesting the United Kingdom “is to international investors. It will be really interesting to see who the buyer pool is as it falls into sovereign wealth territory. BL and Landsec clearly have confidence in liquidity in the retail property market. Maybe this is the bottom of the market.”

It is easy to find headlines and data to reject that theory. In recent days British Land has said that it has been paid £149 million by Facebook parent Meta so that the social media giant can exit Euston offices at 1 Triton Square that it had prelet and never occupied. Meta announced its decision last year as it joined other tech groups in planning to massively scale back footprints, but the news has still jolted the market.

That is because such exits feed into gloomy commentary about vacancy rates. CoStar data shows City of London office vacancy levels at above 11%, for instance, their highest level since 2004 as the capital continues to see the macro economic backdrop and the working from home trend hold back occupier decisions.

In the past week, real estate stocks took a battering when analysts at Jefferies downgraded their recommendation on leading United Kingdom office landlords arguing: “Utilisation has shrunk and landlords are losing pricing power as tenants offload surplus space. Vacancies are at a 30-year high with the West End 7%, City 10% and Canary Wharf we estimate over 20% with the tipping point for a rental recession historically around 8%.”

Real estate investment remains muted too. Only £7.5 billion of property assets changed hands in the second quarter, reports Lambert Smith Hampton, down 10% on the previous quarter’s already low figure, and 41% below the five-year quarterly average.

A general election looms next year and the incumbent Prime Minister Rishi Sunak is beginning to propose increasingly radical ideas on everything from scaling back a number of targets aimed at ensuring the country becomes a net zero carbon producer to taxation as he fights the very real threat of being voted out in favour of a Labour administration, or a Labour-Liberal Democrat administration. This culminated in the scrapping of the Northern leg of the high-speed rail line, HS2, on Wednesday after weeks of speculation.

Rishi Sunak will more than likely face a general election next year. (Getty)

There is, however, evidence that British Land might just be on to something, prompted by direct intelligence from sovereign wealth funds and international investors.

Transaction-wise, September and October are set to be very strong for central London office lettings as a trend for occupiers to move to best-in-class, sustainable headquarters continues.

As Mark Stansfield, CoStar’s head of United Kingdom analytics, points out, the picture is complex: “Although London’s vacancy rate continued to rise in the third quarter, thanks largely to a ramp-up in new deliveries, it remains far lower than big United States markets like New York and San Francisco, and the string of major lettings in the City in recent weeks illustrates an enduring appetite for best-in-class office space.”

Analysts at Morgan Stanley are arguing that United Kingdom property companies “offer a compelling opportunity” at the moment as their balance sheets are well-capitalised and net asset value valuations are close to all-time lows. It points out that property stocks traditionally start doing well towards the end of an economic slowdown, and there are plenty who believe that moment has arrived.

That is thanks in large part to the Bank of England’s decision last month to keep interest rates at 5.25%. The Bank had been expected to raise the base rate from 5.25% to 5.5% but has paused to take stock of figures that showed inflation was 6.7% in August, a drop from 6.8% in July. Walter Boettcher, head of research and economics at Colliers, describes the decision as “boding well for the path of interest rates generally and an eventual recovery” in United Kingdom commercial property transactional activity.

The better figures have already led to the first inflows into United Kingdom property funds since July 2022, with notably an increase in buy orders and a reduction in sales.

Some larger ticket office sales have started to complete, most notably UBS’s acquisition of Bloom, which is social media platform Snapchat’s headquarters, in London’s Midtown for in excess of £220 million and a circa 5% yield, and DTZ Investors’ acquisition of Coventry Logistics Park, Coventry for £140.415 million or a circa 4.5% yield.

And there are signs of global pension fund giants targeting the United Kingdom. Last month, The Healthcare of Ontario Pension Plan, one of Canada’s largest pension funds, said it planned to open a London office as part of its global expansion. Reuters quoted a spokesperson as saying: “We see value in London as a hub to effectively support and manage HOOPP’s growing assets.”

The article goes on to point out that Australia’s largest superannuation fund AustralianSuper is hiring more staff in London after committing to massive investment in development of London’s Canada Water alongside British Land. The country’s second-biggest superannuation fund Australian Retirement Trust has said it will open an office here. Superannuation funds are profit-for-member funds and are effectively the Australian equivalent of British pension funds.

Nick Braybrook, partner and head of central London investment at Knight Frank, points that global markets worldwide are struggling and, in this context, London has continued to perform well. “While real estate investment has slowed globally this year, London has retained its longstanding appeal as the top destination for global cross-border capital. So far this year, across all sectors, London has seen overseas inflows of around $4.8 billion, followed by Paris at $4.1 billion, Toronto $4 billion, New York City $3.5 billion and Los Angeles $2.3 billion.”

United Kingdom on the Rise

So is the United Kingdom ready to shine again? There are plenty in real estate prepared to argue just that.

First, for various reasons United Kingdom real estate looks to have repriced speedily to provide good value on the global stage.

Remco Simon, Landsec’s chief strategy and investment officer, who began his career in his native Netherlands, points out: If you compare the United Kingdom and London “specifically to other markets it never really had the last leg up of the upcycle that many continental European markets had from the last few years of the Quantitative-Easing induced bubble because post-Brexit it plateaued.”

Simon points out that major global markets such as Paris and Berlin saw yields fall to sub-3% in that period while London did not as global investors tried to understand the impact of the United Kingdom’s divorce from the European Union. He adds that valuers in the United Kingdom adjusted valuations much quicker over the last 12-18 months than in Continental Europe: “If you look at the logistics REITs for instance and London office in contrast to Continental Europe, valuers have marketed closer to reality quicker.”

Darren Richards, the head of real estate at British Land, agrees: “I think we are reaching a really interesting point particularly given the strength of the occupational market for best in class, I just don’t know the speed at which we travel through it.

“People are starting to come back to the conclusion that the [United Kingdom] and London is still a pretty safe and attractive place to land capital but the product has to be right.”

Stephanie Hyde, CEO for the United Kingdom and CEO EMEA markets at JLL, in an emailed statement, said United Kingdom property investment remains constrained by macroeconomic factors, but believes the “transition to a more expansionary market is nearing”.

Hyde said recent transactional activity backs this up. “As the Bloom deal in Clerkenwell illustrates our forecasts suggest prime pricing is at or close to the bottom, and recent comments from the Bank of England and inflation data are supportive of this. We certainly expect improved transaction volumes through the end of the year and into next, but for those improvements to be gradual and incremental over a number of quarters rather than the big bounce back we saw post-pandemic.

“JLL continues to see investors that are identifying value in quality locations and sectors. This is encouraging, albeit too soon to call a clear turn in market conditions.”

The situation is being aided by a cheaper pound against other currencies. There is also more confidence that interest rate rises have come to an end.

Landsec’s Simon said investors are still waiting to see where interest rates will settle but the United Kingdom is either at or nearly at the peak, adding that London and the United Kingdom could unlock first with the Continent “a bit behind.”

BL’s Richards agreed: “In the absence of something else unpredictable happening it is heading in the right direction. What investors have been waiting for is some clarity as there has been such a wide spread of possibilities in terms of cap rate, interest rate and then speculation on working from home. The range of outcomes is shrinking in a positive way.”

Simon said the reality is that investors continue to see London as a key global city. “The exodus of bankers has not happened and it still has access to many of the top universities in the world and valuations look more sensible.”

And the politics seem to be fazing few. One leading United Kingdom developer, who declined to be quoted on the record due to the sensitivities of commenting on political issues on behalf of a company, said: “There is very little angst about the upcoming political elections. People think we are through the worst of the political upheaval and have some grown-ups in charge and Labour are making the right noises too. ”

The Office Recovery

Philip Hobley, partner and head of London offices at Knight Frank, said occupier demand for London’s office space is starting to recover after a quiet start to the year.

“Take-up in the second quarter increased almost 10% versus the first quarter, but the real story is the continued focus of demand for new development or refurbished space. Our figures show that over 60% of take up has committed to this quality of office space,” he said. “Near-term demand is well-supported, with 3.4 million square feet of deals under offer, and 9 million square feet of active requirements for space across London.”

Hobley suggests businesses need to secure options early, given potential supply figures indicate a shortage of almost 10 million square feet between 2023-26. He adds that the adviser expects prime rents to grow by almost 4% a year over the next five years in submarkets such as the City core and West End core.

Bleeding Heart Yard. (CoStar)

Nick Braybrook, partner, head of London Capital Markets at Knight Frank, adds that none of this has been lost on investors.

“Whilst acquisitions have been far more challenging for debt-backed buyers, private capital has stepped in, accounting for almost half (44%) of London office investment this year,” he said. He referred to recent purchases of Bloom for £220 million and Bleeding Heart Yard for about £40 million by private investors as suggesting a steadying of prices for “the best assets.”

Braybrook also argues that a growing number of investors see an opportunity to address London’s significant refurbishment challenge: “In a recent Knight Frank survey of investors managing almost £300 billion of assets, 58% said they were actively looking to acquire assets to improve, upgrade or reposition.”

Changes Afoot

If John Mulqueen, chief investment officer at Canary Wharf Group, is feeling browbeaten by the negative headlines about high profile relocations from and high vacancy levels at the Docklands business estate, he certainly is not showing it.

He said real estate investors have seen a challenging environment since 2019, from the pandemic to global economic and political uncertainty, rising inflation and changes in debt markets, but that creates opportunities for experienced long-term investors and operators.

“To succeed, differentiation in the market remains key,” he said. In London, the major development of “Canary Wharf has transformed from a finance district to a vibrant mixed use neighbourhood today, with over 18 million square feet of offices, 2,200 homes, 1.1 million square feet of retail and leisure and 16.5 acres of green spaces and waterside living.”

Mulqueen said, more than anything, people want to be better connected. “Traffic across the estate is at an all-time high, with footfall numbers 33% higher year to date compared to 2022.”

Jonathan Price, an expert in finance and flexible offices who built a £60 million portfolio of business centres for Close Brothers between 2000 and 2006, said the recent angst about coworking group WeWork’s viability masks strong performance in the flexible offices market otherwise.

“I think real estate is looking more attractive from an investment point of view and I have put my money where my mouth is by buying some REITs for my personal pension fund recently. Time will tell if I moved too soon, but recent news” from the United Kingdom’s major players has been more positive than the economic news in general, he said.

Retail On Point

United Kingdom retail is also looking “really interesting” according to Landsec’s Simon: “You had the big reset in retail from 2017 to 2021 in the depths of COVID. We are now seeing retail sales back to where they were for our customers before the pandemic but rents are a third lower and values two-thirds lower.

He added that “we have been talking for a while saying the good stuff is getting better and better, but the bad stuff worse. Inditex recently said they want fewer stores, but at the same time will invest in bigger and better stores. That really makes sense.”

This means the scene could be well set for Meadowhall to come to market, as a hub that remains 98% occupied. The likely buyers will be global investors with very large pockets without the need to rely on debt in the high-margin environment and that means, most likely, sovereign wealth funds. REITs such as Landsec, which has made it clear it wants to buy major shopping malls in recent trading updates, are potential investors.

For the right shopping properties, “I think there is value,” Simon said.

Simon added that is partly a result of the demise of Intu, one of the United Kingdom’s largest shopping hub owners before it collapsed into administration during the pandemic, meant the investment market in the United Kingdom had a broken ownership structure of lenders, bondholders and reluctant historical joint venture owners. “For the right assets if you can underwrite at sensible rents there is good value. We have definitely started to see some selected competition for units in the best locations.”

Martin Towns, deputy global head of real estate at M&G Real Estate, said United Kingdom real estate has faced many challenges that are common to other Western economies: slower economic growth, inflation, rising interest rates and changes to working patterns which were turbo-charged by COVID-19. But he said the United Kingdom benefits from having always been transparent and highly liquid.

The 2022 “mini Budget” and resulting crash exacerbated the situation, Towns said, especially the speed of correction.

“Today, set against a slightly more positive economic outlook and, importantly, robust occupier demand and rental levels, global capital is starting to eye the cyclical opportunity in the United Kingdom,” he said.

However, if the tide does come back in it won’t lift all boats, Towns said.

“Certain older, poorly located office assets have an uncertain future. Yet conversely, best in class,” are in demand, with rents ticking up in some cases. He said his firm’s 40 Leadenhall development is circa 70% pre-let ahead of completion next year.

He adds there are a range of other top picks for investors viewing the United Kingdom: “The living sectors are seeing strong rental growth and demand for multi-let industrial continues to be robust.”

And the real value may lie in the sheer amount of debt that needs to be refinanced.

“In the interim, the standout opportunity remains lower down the capital stack, in real estate credit, where margins are attractive and the downside is protected. With a substantial volume of loans to be refinanced in the coming years there is a clear opportunity to tap right now.”

Source : CoStar

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High Yields Attracting Middle East Property Investors to London, Says Barratt MENA Ahead of Cityscape Global

Julian Berry — Mon, 18 Sep 2023 11:33:53 +0000

Riyadh, Saudi Arabia: Barratt London and the recently launched Barratt London MENA office, led by UAE-based Hardington Residential, will be targeting Middle East investors with a range of projects offering high yields and impressive projected capital appreciation when the company makes its debut at Cityscape Global, which takes place from 10-13 September in Riyadh, Saudi Arabia.

One project being showcased to investors on Hardington Residential’s dedicated stand at the international property showcase is Barratt London’s award-winning Hayes Village regeneration project, which was recently visited by British Prime Minister Rishi Sunak, where he announced an additional US$250 million (£200 million) of government funding for development of new housing on brownfield areas in the English capital.

Homes at Hayes Village, set on a former Nestlé factory site, range from one-bedroom apartments to three-bedroom family properties, with some still retaining the elegant Art Deco featured in the original factory. Barratt London’s latest offering within the development is the Richart Apartments, a collection of one- and two-bedroom apartments, with prices starting from US$415,000 (£329,000). The development is surrounded by parks and gardens planted with 250 new trees and includes fitness trails, outdoor gym equipment and play areas to improve health and wellbeing.

A footpath also connects the development to Hayes and Harlington train station in less than a nine-minute walk, with high-frequency Elizabeth Line trains into central London in 30 minutes.

Stuart Leslie, International Sales and Marketing Director at Barratt London said: “Similarly to our other major regeneration schemes, Hayes Village is proving popular with overseas buyers, particularly those from the Middle East where we have seen significant interest and sales from individuals and family offices from Saudi Arabia, Kuwait, Qatar and the UAE.

“There has been a significant uptick from buyers in the Middle East looking for a home in London for work or as a home for children who are studying in the capital. With projected capital growth of 19% in the next five years and expected rental yields of up to 5.9%, the development offers great value for money, piquing the interest of Middle Eastern investors keen to diversify their portfolios in a reputable and potentially lucrative market.”

Another Barratt London development making waves amongst Middle Eastern investors is the recently launched Wembley Park Gardens, a new landmark development built in the heart of Wembley Park, an area famous with football fans worldwide as the home of the England national football team.

In addition to football fans, overseas investors have quickly recognised the area’s transformation, following US$3.5 billion (£2.5 billion) of regeneration in the last 20 years. In the previous five years, rents in the area have increased by 49%, compared to the 23% London average. Furthermore, despite benefiting from the regeneration of Wembley Park and the redevelopment of Wembley Stadium, according to research from JLL, the neighbourhood is still 30% cheaper than the Greater London average, further underscoring the return on investment opportunities.

The development will deliver a smart collection of 302 one- and two-bedroom apartments to the market, featuring outdoor private space, with prices starting from US$495,000 (£395,000) and handover for phase one expected by summer 2025.

Residents will benefit from a world-class destination, offering a good choice of shopping, world-class restaurants, picturesque green spaces, highly rated schools and cultural and leisure attractions. Central London is just 20 minutes via the Underground, while overground stations provide easy access to the countryside and key British towns and cities, such as Oxford.

Ian Plumley, Managing Director, Hardington Residential, said: “Investors in the Middle East have been quick to recognise the unparalleled financial opportunities many of the capital’s regenerative areas are offering, including Wembley Park Gardens, where robust yields, impressive return on investment and substantial capital appreciation have resulted in a spike in interest from interested buyers in this region.

“Cityscape Global represents an excellent opportunity to showcase the quality of the developments offered by Barratt London while also providing an overview of the potential financial remuneration investors can expect. We will have a team on hand able to outline everything from the areas within London where the developments are located to applying for mortgages, ensuring a confident and informative process.”

Barratt MENA will be exhibiting at Cityscape Global in Hall 1, Stand R64, with Stuart Leslie and Ian Plumley available for interview throughout the show.

Source : Zawya

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Australian Property Investors Set Their Sights Offshore

Jonathan Barton — Sun, 17 Sep 2023 11:29:25 +0000

Domestic underperformance in the office sector means Australian property investors are turning their gaze towards global alternative real estate opportunities, portfolio managers say.

Data from the Australian Bureau of Statistics (ABS) on 30 August revealed CPI inflation had eased to 4.9 per cent in July. This was down from 5.4 per cent in June compared to the peak of 8.4 per cent in December 2022.

The Australian commercial property market was noticeably impacted by the rising rates cycle. It recorded the slowest quarter in Q1 2023 in over a decade with transactions at just $5.3 billion, a year-on-year decline of 73 per cent.

Australian names such as Cromwell Property Group and Dexus announced significant statutory net losses in FY23, at $443.8 million and $752.7 million respectively. For both companies, this was primarily driven by unrealised fair valuation losses on investment properties.

Justin Blaess, principal and portfolio manager at Quay Global Investors and winner of this year’s Global Property Securities Fund of the Year at the Money Management Fund Manager of the Year Awards, noted how the rising rates cycle has affected the property market domestically and internationally.

“Historically, rising rates hasn’t necessarily been an impediment to poor returns, but this time around it has. Real estate has struggled as a result of the magnitude and short time frame in which we’ve had big increases in interest rates,” he told Money Management.

As rising rates come to an end, Blaess said, operating environments have become relatively robust.

Damon Mumford, a Dexus Core Property Fund manager, observed the growing investor demand for global alternative real estate, which includes a range of non-traditional sectors such as retirement housing, self-storage and student accommodation, as people move away from offices and retail.

Traditional property sectors, particularly Australian office and retail, have been plagued by cyclical headwinds alongside the structural impacts of hybrid work environments.

Research from Dimensional showed that real estate investment trusts (REITs) focused on office properties have dropped nearly 25 per cent from the onset of 2022 to 30 June 2023.

Instead, exposure to alternative property allows for greater portfolio diversification and attractive growth fundamentals, Mumford explained.

According to Macquarie Group, Australia lags behind in alternative REITs compared to the US market. In 2022, the sector comprised only 7.5 per cent of our domestic market. For the US market, 54 per cent was made up by alternatives.

The Dexus fund manager observed that the sector is still at its infancy in Australia, meaning opportunities for investors are limited.

“There is a much larger opportunity set in other markets such as the US, where investors can gain exposure to quality operators in sectors that have a history of market acceptance and performance,” he added.

According to Justin Pica, lead portfolio manager of the UBS CBRE Global Property Securities Fund, Australia makes up less than 3 per cent of the total addressable global property market worth over US$3 trillion.

Mumford reflected on the need for both domestic and overseas property to create an attractive balance.

“The Australian real estate market provides high-quality investment opportunities in a transparent market with attractive growth fundamentals driven by relatively high population growth.”

Meanwhile, overseas properties provide investors exposure to markets that perform at a different pace and offer opportunities that are difficult to obtain in Australia.

“Our view is the diversification that overseas exposure provides should contribute to more stable returns across a real estate investment portfolio,” he said.

Global opportunities for Australian investors

Given these factors, Blaess encouraged domestic property investors to cast their sights overseas, away from the poorer office returns which dominate the Australian property market.

“The global universe has far bigger opportunities and different sectors which have quite exciting outlooks,” he explained.

“It’s worth considering greater diversification, whether it be by sector, by region or by asset type, and the performance dispersion potential offered by overseas and non-cyclical opportunities,” Pica remarked.

Non-cyclical sectors, which are not disrupted by economic cycles, present different operating environments to cyclical sectors, therefore an opportunity for diversification.

Pica continued: “We think both cyclical and non-cyclical real estate options are important when investing.”

Global self-storage is a sector which has seen heightened demand due to its resilient growth, with an estimated market size of US$58.26 billion in 2023.

“We view this sector as more resilient and it was a growth sector during COVID,” the CBRE portfolio manager described.

He also identified hotels as an inviting industry to look out for in global property as valuations become more attractive. Hotels have seen a boom in demand following the pandemic lockdown as travel recommences and tourists flock to certain regions.

“We are observing more attractive hotel conditions in Japan, which clearly benefited from Japanese borders steadily reopening post-COVID and the increased demand for inbound tourism,” the CBRE portfolio manager continued.

Retirement housing is also seeing high levels of demand as the Baby Boomer generation transitions into senior assisted living spaces.

Finally, industrial logistics is experiencing strong trends and benefitting from structural tailwinds due to the rise in e-commerce.

The good news ahead

Following a period of poorer returns in certain property sectors, all three portfolio managers have a positive outlook ahead with higher earnings on the horizon.

“Underperformance of listed global real estate doesn’t generally last. If you have a bad year, you’re more than likely going to be followed by a good year, and we’ve had a really bad year,” Blaess said.

The Quay Global Real Estate Fund (AUD Hedged) saw negative returns of -8.1 per cent over the last 12 months to 31 July 2023.

In the same period, the Dexus Core Property Fund (Class A) reported a negative performance of -11.9 per cent, alongside the UBS CBRE Global Property Securities Fund with -10.5 per cent losses.

“Given the constructive earnings outlook and the value on offer, we think it’s positioning global real estate for a good back half of 2023 and 2024,” he forecasted.

Pica emphasised that global REITs are trading at historically attractive valuations and offer relatively stable fundamentals amidst slowing economic conditions.

Investors can expect positive low to mid-single digit earnings across global REITs markets, which will grow further in the coming 12 months.

Mumford is also optimistic about global real estate as inflationary pressures slowly reduce and investor appetite grows.

“This confidence, combined with better information about the cost of capital and the economic cycle, will see investors return to the real estate market, generating transaction activity that in turn will provide confidence about valuation levels,” he said.

Source : MoneyManagement

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Words Only Go So Far: Investors Want Property Fixed Before Buying China

Sean Potter — Thu, 24 Aug 2023 00:58:59 +0000

HONG KONG/NEW YORK, July 31 (Reuters) – For all the excitement whipped up in China’s markets by the Politburo last week, foreign investors say policymakers’ words will have to be matched by substantive action to clean up an ailing property sector before confidence recovers.

The sector accounts for a quarter of China’s economy, yet developers’ debts are sliding deeper into distressed territory, with repayment problems mounting while sales crumble.

When the Politburo signalled that there would be changes to real estate policy, along with other measures to boost an economy, it ignited the biggest one-day buying spree in China’s stock markets since 2021.

The July 25 rally was enough to lift the benchmark index (.CSI300) into positive territory for the year, but a sustained upturn would depend on policymakers making good on their – so far vague – promises.

“Foreign investors may have started buying more Chinese equities in the hopes that the Politburo was going to herald big, meaningful stimulus, but we would wait until we see more specific measures,” said Tara Hariharan, managing director at global macro hedge fund NWI Management LP.

“The question is what resources they will deploy, because China is still very focused on de-leveraging and preventing financial risks.”

The sorry state of developers’ balance sheets sits right at the top of the risk list.

“Is real estate worth rescuing under China’s current economic model? Absolutely, and urgently,” said Qi Wang, the chief investment officer (CIO) of MegaTrust Investment (HK), a boutique China fund manager specializing in domestic Chinese A-shares.

But investors should be cautious and patient, said Wang, noting the lack of detail from Politburo last week. China “requires more drastic measures than what we have today,” Wang wrote on his Substack.

Finding a way to restore the property sector’s health would have greater impact on the economy, than tax cuts or growth in the technology sector would deliver.

It would unlock consumer spending by homeowners who have lost faith in a housing market, where they have stored their wealth.

Mark Dong, general manager of Minority Asset Management, based in Hong Kong, has reduced his exposure to the property sector. “The sentiment is bottoming, but there is lack of catalyst. It seems that there are no substantive measures yet to help developers, such as bailing out the troubled developers. “

A national-level loosening, such as cutting loan down-payment ratios, is the sort of big gesture necessary, said Bo Zhuang, a senior analyst on the macro strategies group at Loomis Sayles Investments Asia.

‘SOMEWHAT CHALLENGING’

Jingjing Weng, head of Chinese equities research at Eastspring Investments in Shanghai said last week’s rally was largely driven by short-covering.

“The key is when and what specific measures will be followed,” said Weng. “Investors are still more on a ‘wait and see’ approach as they need to see a more sustainable rally in the Chinese equity markets before going back in.”

Foreigners’ net stock purchases of 19 billion yuan ($2.7 billion) on July 25 were the largest one-day rush in a year and a half.

For the year, however, net buying sits around 230 billion yuan, having more or less stalled after net inflow of 186 billion yuan in the first quarter as economy lost its post-pandemic bounce.

Rob Hinchliffe, portfolio manager portfolio manager and head of global sector cluster research at PineBridge Investments, based in New York said their exposure to China is lower than a year ago.

Investing, Hinchliffe said, is “somewhat challenging in China, given some of the top-down decisions that are made. We are underweight China overall now.”

Wai Mei Leong, fixed income lead portfolio manager at Eastspring Investments, says her fund only picks property firms owned or affiliated to the government and the sector’s recovery will drag on for 2 to 3 years.

NO CONFIDENCE

Anxiety over the debts that developers were carrying had festered for much of the past decade. The crunch came three years ago, when worried authorities restricted developers’ borrowing and upended a business model that depended on loans and pre-sales to fund construction.

China Evergrande Group, the most indebted developer, collapsed and unfinished projects dotting cities froze the market.

As the relaxation of COVID-controls failed to bring a sustained rebound in sales, even the more stable developers such as Country Garden (2007.HK) started to struggle with cash flow.

Speculators brave enough to put money in developers’ stocks and bonds last year were rewarded by the rally sparked by the Politburo’s assurances. But larger players say that is no basis for longer-term investing given the fundamental problems developers are facing.

“No one’s got confidence on how these companies are going to survive,” said one fund manager looking after an emerging market credit portfolio for a U.S. asset manager, who declined to be named as they are not authorised to speak publicly.

“Without asset sales or selling of houses – which is declining – how are they going to come up with the cash?” he said. The safest bets in the sector, he said, had come down to state-owned companies such as China Resources Land (1109.HK) and Poly Property (0119.HK).

Source : Reuters

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GCC Investors to Spend $3.2bn in UK Property Market in 2024: BLME

Fred Aguilar — Fri, 11 Aug 2023 14:06:18 +0000

RIYADH: Middle Eastern investors are expected to pump $3.2 billion into the UK real estate market in 2024 to capitalize on its increasing affordability and a growing interest in the student accommodation sector, according to London-based Bank of London and The Middle East.

BLME said the financial strength of the Gulf Cooperation Council economies together with an appetite for assets diversification — as well as an interest in university related properties — are the main drivers fueling the anticipated investment.

The Shariah-compliant institution added that advisers and intermediaries who work with BLME predicted the purpose-built student accommodation asset class would see the most significant investment growth in 2023.

The longstanding affinity of Middle Eastern students with the UK’s schools and universities and the low rate of tenant failure make it an attractive prospect for speculators, stated the release.

“With a perfect storm of strong dollar-pegged GCC currencies, surplus cash following last year’s oil boom and falling UK asset prices, investors in the Middle East have a golden opportunity to spot a bargain while property prices are low,” said Andy Thomson, head of real estate finance and investments at BLME in a press statement.

In 2022, both Saudi Arabia and the UAE made the list of the top 10 countries outside the EU for students coming to study in the UK.

The inflation rate in the UK has caused domestic mortgages to hit the highest level since the global recession in 2008, leading to less demand, which could ultimately result in a fall in real estate prices.

The report further noted that London remains the most preferred destination for GCC investors in the UK, but they are also considering other cities such as Manchester, Birmingham, Newcastle and Bristol.

In January, a report released by real estate firm JLL confirmed that the appetite of Middle Eastern investors for global property markets is expected to grow amid global economic headwinds.

“The willingness of investors to take advantage of discounted buying opportunities will continue to emerge in the face of the uncertain economic outlook in Europe and the US and moderated competition in bidding,” said Fadi Moussalli, JLL’s executive director of International Capital Coverage at that time.

Source : ARABNEWS

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