Stagnated Commercial Property Market
Germany posted economic data showing growth of 0.3 per cent, while France kept its disappointing, though at least consistent, zero per cent for a third consecutive quarter. The news turned out to be better than the forecasts but analysts expect things to only get worse from here. Joerg Krammer from Commerzbank said that contractions of the German economy in the summer are more than likely against the backdrop of the raging recession in the Eurozone combined with the current global economic slowdown. With uncertainty looming over Europe, investors are simply unwilling to hold any type of fixed assets in countries like Spain and Italy which are tangled in their own deep troubles.
!m(/uploads/story/248/thumbs/pic1_inline.png)Italian and Spanish commercial property markets are in slumber. From April to July the number of transactions has fallen by more than 90 per cent, leaving people wondering whether anyone should either buy or sell in these appalling conditions. Real Capital Analytics came out with the grim data on the number of deals struck in 2012. In Spain there were 58 registered transactions in the first quarter compared to three for the second. Italy however holds the record in the category with only two deals for the last quarter down from 52 for the first one. Current inactivity places Portugal ahead of Spain for number of property transactions for the very first time. Total value of transactions for industrial property, shops and offices in Spain fell from €260m (£205m) to €67m (£53m), a decrease of 74 per cent. In Italy there are a few sectors showing promise, including Milan retail space market but the overall trend for investors is to sit back and observe. No matter how lucrative some of these low priced properties might be in terms of rental ratios, concerns for Italy’s economic situation are always lingering in the background.
Spain’s property market used to be one of the most active in Europe and its decline has been considerably more gradual. Back in the early 2000s the property sector was artificially boosted by cheap and readily available debt followed by inflated price expectations. The global crisis sobered investors and hundreds of billions in euros were wiped from the values of Spanish properties. Banks were left hanging with massive amounts of development land, offices and shops and the only way to get rid of them was to sell at low prices. But the recent drop in deals that overlaps with the substantial spikes in borrowing costs for Spain, proves that buyers are unwilling to take risks, no matter how low and appealing prices right now are. Future revenues are clearly viewed as more than uncertain with investors concerned a positive rental cash flow against capital outlay could be quickly reversed in the case of a negative play-out of the variety of possible scenarios that might eventuate in the coming months.
Christian Ulbrich, the head of Jones LaSalle for Europe, said that reality has finally kicked in. “Things have deteriorated a lot since end of last year and prices are coming down drastically.” Serious questions are raised as to what will happen with all those banks holding large amounts of low-priced commercial property if demand remains so low.
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