Good returns: Much of the global property market is shrouded in gloom, but there are still opportunities for those with ready cash. By Lisa Pilkington
Now is a particularly good time to be a flush investor, says Tony Horell, head of European capital markets at Jones Lang LaSalle. “The lack of liquidity in the debt market means those that have cash can run into opportunities, such as people breaching LPV covenants, forced sale opportunities, etc,” he says. “If you have enough equity, you will find opportunities from the distress of someone else. It’s all about securing a low entry price and taking advantage of someone else’s misfortune.”
For commercial property investors, misfortune can be found across the globe, but which locations will yield the highest returns? Last summer, European fund and asset manager Protego launched a Nordic fund, investing in retail property in Sweden, Finland, Norway and Denmark. It has grown to almost €1.2bn, and Protego claims that each time it acquires a retail centre, the rental income it was forecasting is, on average, 15% higher.
According to hotel specialist Christie & Co, these countries are also a good bet for those targeting the hotel sector. Director Kimmo Virtanen explains: “The Nordic and Baltic states, particularly, are underdeveloped in terms of major hotel brands, while potential opportunities also exist in Moscow and St Petersburg. With respective populations of 10m and 4m people, there is considerable scope for further development.”
Retail potential
David Hutchings, head of Cushman & Wakefield’s European Research Group, believes that the Baltic states, and in particular Ukraine, also offer excellent retail potential. “One of the real attractions is the opportunity now emerging because of the shortage of finance after the credit crunch,” he says. “This is opening the way for foreign investors to get involved at an early stage in a range of schemes that simply wouldn’t have been available six-12 months ago.”
Looking further afield, Protego tips Asia for strong returns. Charles Weeks, head of business development, says: “The big places to invest are China, India and Vietnam. However, there are restraints on liquidity in these countries at the moment, though this is seen as a temporary blip. They’re going through some difficult times as credit availability has reduced and is compounded by high inflation rates – India, 12% China, 7% and Vietnam, 27%.”
Michael Thompson, chief executive of C&W Asia Pacific agrees, but he cautions: “China has all the foreign investment it can handle so, for the short-term investor, our top pick is South Korea and, specifically, the Seoul office market over the next two years. Recent currency weakness has helped to boost exports, and makes real estate more attractive for foreign investors.”
Malaysia, notably the Kuala Lumpur office market, is another hot prospect, believes Tim Murphy, managing director of independent property investor IP Global.
He says: “Freehold status on properties, low interest rates and the limited effect the sub-prime crisis has had on the country because of its strong domestic demand mean that Malaysia’s property market is becoming increasingly attractive to foreign investors.”
Meanwhile, more adventurous investors are speculating in Africa. Tony Vassilopoulos, director at Capitalworks Real Estate Partners, says: “There are strong growth prospects in the Sub-Saharan countries, including, but not limited to, Mozambique, Zambia, Mauritius, Nigeria and Ghana. Over the next few years, Sub-Saharan Africa GDP growth is expected to continue to outpace average GDP growth for the rest of the world, partly due to strong demand for commodities.”
Vassilopoulos says that Capitalworks is raising a $1bn fund to invest in this part of Africa.
Boom economy
Other investors are looking to Latin America, particularly Mexico, Chile and Brazil. Nick Burnell of Rutley Capital Partners, the private equity arm of Knight Frank, says: “Brazil’s economic growth has been amazing. This boom economy is spilling over into property. Interest rates are now down to single figures, with opportunistic yields well into the mid-teens. You can make super returns there because it is a very active market, and the yield gap will be on your side.”
Ironically, after sparking the global credit crunch, the US is now turning into a prime investment prospect – for those who still have cash.
Timo Tschammler, managing director of international investment at DTZ, says: “Significant falls in US capital values, combined with a weakening US dollar, have created opportunities for foreign investors to buy property in the US at lowprice levels.”
Similar opportunities in Western Europe are also forecast. Andrew Cruickshank, international director at Atisreal, believes that a lot of money is being put aside for Spain. “Once repricing happens over the next six months, the first quarter of 2009 should see a lot of activity there,” he says.
And the UK could see similar interest as the pound loses value to the euro. German investors have already been active this year in the London office market, and others are expected to follow. Horrell confirms: “We’re now beginning to get calls from banks on UK properties, and I believe there will be some forced sales by the end of the year.”
