Experts at odds on world commercial property recovery

LONDON Thu Jun 25, 2009 10:50am EDT

Construction workers are seen on a high rise office building site on the Pudong River bank at the new financial district of Pudong in Shanghai April 14, 2009. REUTERS/ Nir Elias

Construction workers are seen on a high rise office building site on the Pudong River bank at the new financial district of Pudong in Shanghai April 14, 2009.

Credit: Reuters/ Nir Elias

LONDON (Reuters) - Real estate industry experts are at loggerheads on which commercial property market they expect to bounce back first from the downturn first, after the global financial crisis shredded property values in most countries.

Global real estate investors -- roused by prospects of snapping up bargain assets -- were still wary of getting caught in a false rally and have been keenly watching for signs of a sustainable recovery.

The turmoil that was sparked by a collapse in risky U.S. home loans has devastated the banking system and pushed most major economies into recession, causing commercial real estate markets to suffer as values and occupancy rates fell.

At the Reuters Global Real Estate Summit this week, speakers disagreed on whether the UK, which has fallen the longest and deepest, could be first to recover, or the fast-growing economies of emerging Asia and Europe will lead the pack.

"Such a financial crisis will allow countries, which were not considered good for capital investors, to become more interesting ... the U.S. is becoming less and less important," WP Carey International's (WPC.N) President, Edward LaPuma, said.

Globally, commercial buildings such as office blocks, retail malls, and industrial parks shed nearly 15 percent of their value on average last year, data from UK-based Investment Property Databank showed.

A survey of over 50 countries by the Royal Institution of Chartered Surveyors (RICS) showed commercial property values fell across all emerging markets in the last quarter of 2008, the first time this had occurred in the survey's history.

The UK's commercial property market was the first to enter recession after a five-year bubble burst in mid-2007, sending values plunging by as much as 44 percent as of last month.

"You're immediately drawn to the recovery markets where depression hit first and these are the UK, Spain ... there is an awful lot of money looking for a home, particularly in the UK," Mike Sales, head of property investments at Henderson Global Investors, said.

Others were more wary, believing the effects of damaged credit markets will put the debt-fueled British market on course for a long-drawn period of stagnation.

"A lot of people are raising money for opportunity funds on the basis of constant talk about green shoots in the UK ... honestly while things have stabilized a fraction, it is going to be a long, slow haul out of the mess," Axa REIM's head of transactions and asset management, Steve Smith, said.

BRICs LEAD

Speaking in London, Citi Property Investors' (C.N) President, Roger Orf, expects commercial real estate in the BRIC economies -- namely Brazil, Russia, India and China -- will be among the first to rebound.

"A textbook look at those economies tends to show that real estate growth tends to be linked to GDP (gross domestic product). And these countries will probably see growth of 9, 10, 12 percent," Orf said.

Some industry players focused their optimism on their home markets, betting that the fundamental strength of these countries markets will pull the industry out of its decline.

"Russia can and should emerge from the crisis earlier than other European countries because there is a fundamental shortage of residential real estate in the country," Igor Levit, CEO of St Petersburg-based real estate firm LSR Group (LSRG.MM) said.

The recent rise in oil prices, which has more than doubled to about $70 per barrel since December, will also boost Russia's healing process, Levit said. Russia is the world's No.2 oil exporter.

His confidence echoed John Bullough, CEO of Abu Dhabi's largest listed developer Aldar Properties ALDR.AD, who expects the oil-producing emirate to emerge from the downturn quickest.

In Asia, developers in China, India and Singapore were generally upbeat about their prospects, with some already keying up plans for new projects in anticipation of an upturn later this year. [ID:nSIN487133]

Some investors preferred to stay selective in Asia.

"The process of debt restructuring and market resetting, and capital and economic stabilization seems to be happening fastest in (Australia and Japan)," LaSalle Investment Management's Chief Investment Officer for Asia Pacific, Ian Mackie, said, but plans to give India a miss due to the risks.

"We have not seen an attractive investment in India in terms of risk-adjusted returns... We can get the same returns in Japan and the risks are much, much higher in India," he said.

(Additional reporting by Sinead Cruise, Jason Benham, and Kevin Lim; Editing by Andrew Macdonald)

($1=.7183 Euro)

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