Situs Newswatch 10/4/2017

Situs RERC Releases Biannual European Commercial Real Estate report
European investors have been riding the wave of economic recovery for eight years, but eventually we expect that wave to make landfall. The commercial real estate (CRE) market is cyclical in nature, and the CRE boom that we have seen since the end of the Great Financial Crisis (GFC) is bound to come to an end eventually – but likely with a soft landing, not another crash.Despite uncertainties following the Brexit vote, the economic and CRE news remains encouraging throughout Europe. The wave is continuing as investors in all the markets surveyed by Situs RERC reported that plenty of cash is still available for investment. They attribute this at least in part to the ECB’s decision to keep interest rates low and continue quantitative easing (QE).

The current issue of the Situs RERC Real Estate Report – European Edition provides insight into the state of the European economy and CRE, including analyses of the major asset classes and European regions. Situs RERC surveyed experts throughout Europe and culled data from hundreds of CRE valuations to provide data on investment rates and investor sentiment.

Taco Brink, Managing Director of Situs RERC, states, “In the UK, the economy and CRE are benefiting from loose economic policies, a weak pound sterling and an influx of foreign investors looking for places to park their money for the long term. These trends are overriding understandable concerns about the short- and long-term effects of Brexit.”

“Germany has a stable political situation, a strong economy, low unemployment, low interest rates and no inflation,” says Wilhelm Hammel, Managing Director of Situs. “This has led to Germany overtaking the UK as the preferred European CRE investment location.”

Other highlights from the report include:

  • Ireland and Spain have had great economic growth in recent years, even though the unemployment rate in Spain remains above 17 percent. Ireland stands to be more affected by Brexit because so much of its economy is linked to the UK. But not all in a negative way, and Spain’s CRE has seen a recent surge of investors pouring money into Madrid and Barcelona, along with smaller cities such as Malaga and Valencia.
  • The Netherlands is the logistics hub for Europe and highly dependent on foreign investment. It is doing well now, and should continue to as long as Europe as a whole keeps riding the wave.
  • The risk tolerance for alternatives, industrial and multifamily product in the UK remains high despite the Bank of England reaffirming that the UK commercial property market is vulnerable to a repricing.
  • While many pundits claim the market has peaked, or will peak soon, the majority of respondents in the Situs RERC survey believe that underwriting assumptions in Europe are better today than before the GFC.
  • Underwriting standards of debt capital have remained stricter than underwriting standards of equity capital.
  • The recommendation to sell across Europe remained by far the most popular investment option during Q3 2017, significantly more than a year ago. Only in Mediterranean countries did investors favor buying over holding or selling properties.
  • LTV ratios in Q3 2017 in the UK and Germany specifically, increased over the previous quarter.
  • German yields are at unprecedentedly low levels – even in the hotel, student housing and nursing home space.

Situs personnel will attend Expo Real in Munich. If you’d like to schedule time for an appointment, click here to email us.

Despite Brexit, London Skyscrapers Draw Highest Rents in Europe
Rents for office space in London skyscrapers are still the highest across Europe, a report showed on Thursday, indicating that the capital remains one of the most sought after business hubs despite Britain’s looming exit from the European Union.

Prime rents in London buildings over 30 storeys stood at $110 per square foot over the first half of the year, nearly double the $58 per square foot and $54 per square foot rent for buildings in Paris and Frankfurt, respectively, according to the report by property group Knight Frank.

London’s future as Europe’s premier financial hub has been threatened by Brexit as many companies have said they may move some jobs out of the British capital if the country loses its access to Europe’s single market and are already drawing up plans.

However so far the amount of office space take-up, including across the City of London and Canary Wharf financial districts, has been steady over the past year, prompting overseas groups to buy the British capital’s best-known skyscrapers including the “Cheesegrater” and “Walkie Talkie.”

read more: NYT

Banks’ Brexit Moving Costs Are Seen Topping $500 Million Each
Costs are climbing as banks are finding it more difficult than anticipated to persuade reluctant Londoners to move abroad and are reckoning with a shortage of experienced bankers in Dublin, Paris and Frankfurt, said officials, who asked not to be identified discussing confidential matters.

“There’s no doubt that the costs are significantly bigger than the banks originally expected,” said Jon Terry, a partner and pay specialist at PricewaterhouseCoopers LLP. “There aren’t enough qualified people in local EU markets to meet the needs of the banks, so they are going to have to rely on moving more expensive staff from elsewhere. And a lot of those people don’t want to move.”

Banks may have to resort to costly relocation packages that include housing, private school costs and other perks to get Londoners to go. Someone who earned 1 million pounds ($1.3 million) in the U.K. could easily cost 1.5 million pounds in Paris or Frankfurt, after offsetting any increases in income taxes and other expenses, Terry estimated.

Moving a few hundred people into new offices in the European Union by April 2019 may add up to $100 million in personnel expenses alone, leaving aside the legal, technology and capital outlays related to setting up the entity, said one of the people. While few banks have provided public estimates of their costs, HSBC Holdings Plc said in July it faces a bill of as much as $300 million to transfer 1,000 staff to Paris, where it already has a fully licensed subsidiary.

read more: Bloomberg

Weak German, Spanish Inflation Lends Support to Slow ECB Exit from Stimulus
German and Spanish consumer prices rose less than expected in September, tilting a finely balanced monetary policy debate at the European Central Bank toward a more measured exit from its stimulus programme.

Prices in Europe’s largest economy rose 1.8 percent year on year, EU-harmonised data showed on Thursday – less than the 1.9 percent rise forecast in a Reuters poll. In Spain, equivalent prices rose 1.9 percent, below the expected 2 percent.

Hawks at the ECB want the central bank, whose main policy target is an inflation rate of just under 2 percent, to scale back its asset purchases relatively quickly while doves favour a gradual withdrawal.

It is expected to decide this autumn – most probably later in October – whether to curb its stimulus from next year.

“The figures allow the ECB to exit its expansionary monetary policy slowly,” said Marco Bargel of Commerzbank. “The inflation we are currently seeing in Germany and in the euro zone lends no reason to wait longer to wind down the bond purchases, but at the same time there is no reason to rush.”

read more: Reuters

European Real Estate Investment Outlook Bright
The outlook for much of the European real estate investment market looks brighter today than it did a year ago – buoyed by increasing economic confidence, easing political tensions and continued inflows of capital from investors around the world.

While uncertainty hasn’t gone away, analysts say they feel more comfortable than 12 months ago. Back then, the United Kingdom’s Brexit vote to leave the European Union triggered fears of potential volatility and upheaval across the continent.

According to data from real estate services firm JLL, European investment volumes in the first half of 2017 stood at $114 billion, up 7 percent from $106 billion in the same period of 2016.

Meanwhile, the FTSE EPRA/NAREIT Global Real Estate Index Series shows that European REITs and listed real estate companies posted total dollar-based total returns of 1.7 percent in the year to July 31, versus returns of 10.1 percent on a global basis.

read more:

CMBS Loan Against Newark, N.J., Offices Purchased Through Fair-Value Option
The $121.2 million of CMBS debt against the 782,806-square-foot Two Gateway Center office building in Newark, N.J., was retired through the use of a fair-value purchase option.

As reported, the loan, which was securitized through CD, 2006-CD3, had been in special servicing for nearly two years, transferring when occupancy and cash flow, had dropped. Prudential Financial Inc. had substantially reduced its then-327,463-square-foot footprint at the property and the Port Authority of New York and New Jersey moved out of the 112,145 square feet it had occupied.

C&K Properties initially was thought to have orchestrated the loan’s discounted pay-off. But that evidently wasn’t quite the case. Instead, affiliates of Axonic Capital and Taconic Capital Advisors, which are thought to have held subordinate bonds from the CMBS transaction, exercised their fair-value option to buy the loan.

read more: Commercial Real Estate Direct

Click here to subscribe to Situs Newswatch.

Thank you for choosing the Situs Newswatch. If you want to see your company here or have an idea for coverage, please respond to this email or email for more information.