Real Estate Forum

NEWS FRONT

What you need to know in key markets around the globe

Experts See Multi-Year Recovery for Spanish Real Estate

MADRID—Core European commercial real estate markets, such as London and Paris, have witnessed improving activity levels throughout the first quarter, according to global experts. Certain secondary markets, however, that took the first hit at the start of the financial crisis are still struggling with massive deficits and diminished economies.

Take Spain, for instance. While it has a relatively low debt load compared to its foundering neighbors—Greece, Portugal and Ireland, Spain’s weak banks and high unemployment have taken a toll on its economy. Standard & Poor’s downgraded the country’s sovereign debt, citing the likelihood of continued sluggish economic growth.

Spain’s fall was one of Europe’s most spec-
tacular. “Spain had become the darling with
perceived wealth,” says Steve Collins, manag-
ing director of Jones Lang LaSalle’s
International Capital Group. “But the banks
were lending to everyone, and it came crash-
ing down when the markets turned south.”
A first quarter Bank of Spain report esti-
mates that banks have nearly $81 billion of
real estate assets on the books, and this fig-
ure could potentially get as high as $223 bil-
lion. “Exposure to the construction and
property development sectors implies a sig-
nificant risk for the Spanish banking sys-
tem,” the report said.

Executive Moves

TOKYO—GE Capital Real Estate International has promoted Francois Trausch to be chief executive officer, Asia Pacific. TORONTO—Three real estate brokers formerly with DTZ Barnicke have joined Avison Young. Gord Cowan and Stephen Yu are now vice president and retail specialist, respectively, in the Toronto North office; and Darren Clare is senior retail consultant in the company’s Ottawa office.

For more executive moves, please visit www.globest.com/executivewatch.

Cowan

Taking a Global Approach to Investment

Our latest global investment outlook forecasts a 30% increase in activity this year to $478 billion. This could improve if the economic recovery remains on track, but there are, of course, still plenty of hurdles to overcome.

The case for purchasing core product in key markets is easily made and competition to buy in these markets is quite high. This may help to fill hotels in Paris, London, Sydney and New York, but it won’t drive the increase in market activity our research suggests is possible. So where will investors look?

For the opportunistic, the answer is easy: if the price is right, virtually any market can offer

opportunities and a range of motivated sellers. For core investors, however, greater selectivity is clearly still needed.

In Europe, risk-averse players will be slow to leave the larger, liquid markets of the United Kingdom, France and Germany. But Nordic markets should pick up, as should others such as the Italian and Dutch, particularly for retail. In general, core, modern retail and logistics should be preferred but supply-constrained office markets also offer potential, driven by yield compression in the short term and rental growth in 2011 and 2012.

By David Hutchings

In the Americas outside the US, Canada has emerged from the downturn as a good target for global diversification, but competition for core assets will be strong. Brazil has also come out of the recession as a stronger candidate for global investors. Class A office looks attractive, whicle hospitality, residential and retail offer potential.

Asia, meanwhile, offers a range of mature and emerging possibilities. Cities such as New Delhi, Mumbai and Bangalore in India, Beijing, Shanghai and Hong Kong in China as well as Sydney, Australia and Seoul in South Korea appear poised for businesses expansion, with growing confidence boosting real estate demand. Japan is also looking more compelling with a relatively high spread between yield and finance cost.

Overall, with more forced and opportunistic sellers, an increase in public-sector sales and potential in debt as well as equity instruments, investors should find a growing array of options open to them. However, to fully appreciate what the market has to offer, they need to set aside old ideas of what constitutes a mature and emerging market and focus on the reality of today’s environment.