'Like Nowhere Else' - London's West End saw strong growth in 2009 and 2010. Is it set for further growth? Or could growth stall and reduce in 2011 and beyond?
Richard Dickinson gave us an erudite overview of the economic and political environment and prospects for the West End. He set out the positives behind significant strong performance in the midst of recession. At the same time questioned, with the era of austerity upon us, how can the West End continue to invest to keep it as a World Class destination?
Some of the answers lie in the continued success and support of the private sector to the Business Improvement District. Property owners could provide matched funding to the expected BID renewal at the end of 2011. The private sector is however already facing the 2% Business Rate supplement to help fund Cross Rail. This overall £16bn investment should add 30% capacity to tube travel. Westminster is examining ways to retain and reallocate rateable values. It has already been innovative in agreeing S106 credit offsets for investment in the public realm. Tax incremental finance is a medium term possibility for 2013 onwards.
The positives for the West End in 2010 are an 8% pa increase in sales, record rental levels, plus significant investment in flagship stores. These positives being supported by low interest rates, relatively strong economy (65% consumer driven) and growing tourism visits (25% are overseas visitors with a further 20% of visitors from the rest of the UK) helped by the level of the £. Also with a strong bias towards fashion the retail offer is more resilient to the impact of on line spending. The issue is the extent to which these factors continue to underpin growth or whether the VAT and NI increases in 2011 will slow or even reverse these trends.
In a lively Q&A the wide ranging discussion covered the impact of the 2012 Olympics, other suburban and out of town retailing, and whether the West End is and will struggle to maintain its identity. With rents escalating where is space for the street trader and independent retailer? Can the New West End Company ensure the West End keeps its true London identity and heritage, whilst being a destination for the worlds' and UK's leading branded Retailers?
Michael Mallinson
Scribe
Thursday, December 2, 2010
Thursday, September 30, 2010
Sovereign Debt Crisis
and the consequences for real estate
a presentation by Jose Luis Pellicer of the Research Team at AEW Europe
I have never had a serious operation, but I recalled my limited experiences during Jose’s address to our lunch on 16th September 2010. You are woken after the operation, with the surgeon staring at you. You, at first, wonder whether he is St Peter or the other chap, but then he reassures you that the operation went well. After a moment’s relief, your thoughts then turn to how awful you feel and how impossible it will be to recover. Well, Jose assured us that the operation of rescuing the financial system had gone well -– "Armageddon avoided" as he put it. But the cost has been vastly over-extended government finances in most of the major economies. Recovery involves the unwinding of that. His prognosis was that the job would take at least another 12 to 18 months, with the pain making physiotherapy look a doddle. Should governments not address the issue and default, then that would be even more painful in our sophisticated market economies. In response to a question, whilst there are clear risks for Greece, and, to a lesser extent, for Portugal and Ireland, many others who offer poor stats may not be as weak as they seem. For example, in Spain its 20% unemployment figure includes many immigrants who may return home, and household indebtedness is much less than in the UK. He therefore presently sees little risk of a domino effect to major economies – provided that we take the medicine (or do the exercises!).
Jose could not see the cavalry arriving in the form of non-Western economies. South America is too small to be material, and China shows every sign of over-heating – which would be very negative for Germany and Eastern Europe.
The only realistic tool available to most governments is to reduce expenditures; waiting for economic growth to rebalance the books is not a viable option. Our concern must therefore be on the effects of this solution on real estate.
In some ways, we have been in a sort of ‘phoney war’ since the immediate crisis was stemmed. Not unnaturally, the immediate effect was to make investors risk-averse. This favoured, perhaps paradoxically, government bonds and also apparently-secure forms of real estate, thus buoying prices, but Jose doubts whether that will be sustained. The occupation market is bound to be hit and this must, surely, cause yields to soften – perhaps considerably. He particularly drew attention to the retail and ‘logistical’ market. Demand is bound to fall, perhaps dramatically. In many parts of Europe there are already worrying levels of retail over-supply. One questioner asked whether the weight of money could see property yields harden however due to inflationary fears; Jose thought not.
All-in-all, Jose was not a bearer of good tidings. If the issues are faced, there will be pain, but recovery will come. He was asked whether the process might not become politicised; whilst accepting that this was a risk, and, inevitably, cuts will require political decisions, he was optimistic that politicians would not worsen the situation. That was about the only positive note your Scribe was able to write down, plus, of course, the pleasure of hearing a speaker who was master of his subject. We wish Jose well in front of a ‘home’ audience when he speaks at the inaugural lunch of the new Chapter in Madrid on the 29th September.
Michael Mallinson
Scribe
a presentation by Jose Luis Pellicer of the Research Team at AEW Europe
I have never had a serious operation, but I recalled my limited experiences during Jose’s address to our lunch on 16th September 2010. You are woken after the operation, with the surgeon staring at you. You, at first, wonder whether he is St Peter or the other chap, but then he reassures you that the operation went well. After a moment’s relief, your thoughts then turn to how awful you feel and how impossible it will be to recover. Well, Jose assured us that the operation of rescuing the financial system had gone well -– "Armageddon avoided" as he put it. But the cost has been vastly over-extended government finances in most of the major economies. Recovery involves the unwinding of that. His prognosis was that the job would take at least another 12 to 18 months, with the pain making physiotherapy look a doddle. Should governments not address the issue and default, then that would be even more painful in our sophisticated market economies. In response to a question, whilst there are clear risks for Greece, and, to a lesser extent, for Portugal and Ireland, many others who offer poor stats may not be as weak as they seem. For example, in Spain its 20% unemployment figure includes many immigrants who may return home, and household indebtedness is much less than in the UK. He therefore presently sees little risk of a domino effect to major economies – provided that we take the medicine (or do the exercises!).
Jose could not see the cavalry arriving in the form of non-Western economies. South America is too small to be material, and China shows every sign of over-heating – which would be very negative for Germany and Eastern Europe.
The only realistic tool available to most governments is to reduce expenditures; waiting for economic growth to rebalance the books is not a viable option. Our concern must therefore be on the effects of this solution on real estate.
In some ways, we have been in a sort of ‘phoney war’ since the immediate crisis was stemmed. Not unnaturally, the immediate effect was to make investors risk-averse. This favoured, perhaps paradoxically, government bonds and also apparently-secure forms of real estate, thus buoying prices, but Jose doubts whether that will be sustained. The occupation market is bound to be hit and this must, surely, cause yields to soften – perhaps considerably. He particularly drew attention to the retail and ‘logistical’ market. Demand is bound to fall, perhaps dramatically. In many parts of Europe there are already worrying levels of retail over-supply. One questioner asked whether the weight of money could see property yields harden however due to inflationary fears; Jose thought not.
All-in-all, Jose was not a bearer of good tidings. If the issues are faced, there will be pain, but recovery will come. He was asked whether the process might not become politicised; whilst accepting that this was a risk, and, inevitably, cuts will require political decisions, he was optimistic that politicians would not worsen the situation. That was about the only positive note your Scribe was able to write down, plus, of course, the pleasure of hearing a speaker who was master of his subject. We wish Jose well in front of a ‘home’ audience when he speaks at the inaugural lunch of the new Chapter in Madrid on the 29th September.
Michael Mallinson
Scribe
Wednesday, July 7, 2010
Private Sector Climate Change Solutions
“Private Sector Climate Change Solutions: Do governments even need to get involved under the Copenhagen Accord?” a talk to Lambda Alpha International by Dr. Douglas Crawford-Brown, Executive Director, 4CMR, University of Cambridge Sustainability, Pell Frischmann (June 24, 2010. For a summary of Dr. Crawford-Brown's presentation, click HERE. [.pdf]
Tuesday, May 11, 2010
Conservation Significance:
Have we lost the plot? What's it all about ???
Anthony Walker is co-author of Building Sustainability in the Balance (published by Estates Gazettte) and founding partner of DLG Architects, Accredited in Building Conservation with a particular interest in the 20th century and conservation management.
Clearly, he is a man who cares deeply about the conservation of the built environment, and he used our lunch on 29th April 2010 to express his concerns that the regulations against which we, in Britain are trying to do the job are not, to use the current phrase, "fit for purpose". The recently-introduced PPS5, Planning and the Historic Environment, has added to his anxiety. The core of the problem, as he sees it, is that the rules, and the guidance issued by English Heritage use words that are highly subjective and capable of extensive interpretation. Whilst this may bring work to consultants and lawyers for years to come, it militates against owners and developers who wish to engage constructively, and is not conducive of consistent outcomes. The result of all this is that local authorities tend to become formulaic in their approach, with great divergence in the lines that they take. The whole process is being driven, in Anthony’s view, by "order" rather than "ideas". In part this reflects, of course, the training of conservation officers, few of whom understand architecture, or design.. They thus feel unable to hear and interpret ideas in the language of architects. There is also a need for all involved in conservation to better understand the economics and commercial realities of property ownership and different uses.
This rather rote-driven approach becomes of particular difficulty with 20th Century buildings. The diversity of architectural language developed and deployed in buildings of that century is particularly impenetrable to a rule-based approach. Anthony gave us the particular example of the Commonwealth Institute building in Kensington. In a sensitive location abutting Holland Park, its most striking external feature is its roofline. However, the building contains extensive detailing in both design and lay-out that reflects its historical genesis. In discussions about its future, these all seemed to get swept away, with only the roof becoming the icon!
In subsequent discussion, comparison was made with Europe, particularly France and Spain. The Spanish, whilst being meticulous in conserving valuable detail, are far more willing to consider modern additions provided that thought is given to how the original architect might have treated the issue; they do not seek pastiche. The French seek to conserve much less, but what they do conserve, they conserve thoroughly and well. This led Anthony to argue that our approach to conservation seems to far too broad-brush, with everything including the kitchen sink being swept in.
As a personal aside, the debate reminded me of the anguish of engaging, in education, with Ofsted; when dealing with intangibles, officialdom has problems. Judging by the furrowed brows, Anthony’s talk gave us some cause to worry, but it is always a pleasure to hear speaker talking with passion on his subject
Michael Mallinson
Anthony Walker is co-author of Building Sustainability in the Balance (published by Estates Gazettte) and founding partner of DLG Architects, Accredited in Building Conservation with a particular interest in the 20th century and conservation management.
Clearly, he is a man who cares deeply about the conservation of the built environment, and he used our lunch on 29th April 2010 to express his concerns that the regulations against which we, in Britain are trying to do the job are not, to use the current phrase, "fit for purpose". The recently-introduced PPS5, Planning and the Historic Environment, has added to his anxiety. The core of the problem, as he sees it, is that the rules, and the guidance issued by English Heritage use words that are highly subjective and capable of extensive interpretation. Whilst this may bring work to consultants and lawyers for years to come, it militates against owners and developers who wish to engage constructively, and is not conducive of consistent outcomes. The result of all this is that local authorities tend to become formulaic in their approach, with great divergence in the lines that they take. The whole process is being driven, in Anthony’s view, by "order" rather than "ideas". In part this reflects, of course, the training of conservation officers, few of whom understand architecture, or design.. They thus feel unable to hear and interpret ideas in the language of architects. There is also a need for all involved in conservation to better understand the economics and commercial realities of property ownership and different uses.
This rather rote-driven approach becomes of particular difficulty with 20th Century buildings. The diversity of architectural language developed and deployed in buildings of that century is particularly impenetrable to a rule-based approach. Anthony gave us the particular example of the Commonwealth Institute building in Kensington. In a sensitive location abutting Holland Park, its most striking external feature is its roofline. However, the building contains extensive detailing in both design and lay-out that reflects its historical genesis. In discussions about its future, these all seemed to get swept away, with only the roof becoming the icon!
In subsequent discussion, comparison was made with Europe, particularly France and Spain. The Spanish, whilst being meticulous in conserving valuable detail, are far more willing to consider modern additions provided that thought is given to how the original architect might have treated the issue; they do not seek pastiche. The French seek to conserve much less, but what they do conserve, they conserve thoroughly and well. This led Anthony to argue that our approach to conservation seems to far too broad-brush, with everything including the kitchen sink being swept in.
As a personal aside, the debate reminded me of the anguish of engaging, in education, with Ofsted; when dealing with intangibles, officialdom has problems. Judging by the furrowed brows, Anthony’s talk gave us some cause to worry, but it is always a pleasure to hear speaker talking with passion on his subject
Michael Mallinson
Thursday, March 25, 2010
Lighter, Quicker, Cheaper
‘Lighter, quicker, cheaper – The case for more timely, less capital intensive, more human-scale development,’ a presentation before the LAI London Chapter by Eric Reynolds, Founder of Urban Space Management.
Pow! Straight between the eyes! Eric confronted us, at our lunch on 23rd March 2010, with the idea that, when it comes to development, we all think too big. He has been practising small-scale, low-cost, high-speed development for many years, with considerable financial and productive success; he wonders why most of us get caught up in 'comprehensive' development, always seeking to expand both the envelope of the sites with which we deal, and their conceptual framework.
The answer to that question lies, for him, in the mindset of the professionals involved. Perhaps reflecting one of the fundamental fallacies of professionalism, everything has been made more complicated than it needs to be; whilst he didn’t make the charge, more complication may lead to more fees. Thrusting aside such a base motive, there is a natural tendency amongst intelligent people to make things ever-more complicated. We have fallen for that tendency, with deleterious effects.
In the terms of the development process, it has greatly expanded the timescale for renewing our urban fabric, and increases the risk that, by the time a development is completed, the world will have moved on in some important respect. The larger new structures created may also have shorter productive lives, thus accelerating the cycle of disruptive development. Most existing structures, well-set in their social environment, are surprisingly adaptable, and adaptation may be better, and more profitable, than reaching for the demolition ball and trying to make the figures work by enlarging the enterprise. Whilst 'sustainability' has rightly become a buzz-word, large buildings encourage the restriction of that word to the building itself, rather than building plus environment.
Apart from this, big tends to be less socially conducive -– large tower cranes show a lack of respect for the local society into which they are introduced. Large developments also encourage the developer to think too much of the interior, and too little of the urban context, in social terms, into which the building is being inserted. In my own experience, I recall my dismay at the pot-holed roads and cracked pavements that surrounded some gleaming new creation. I blamed the local authority, but Eric might argue that I should have seen the beam in my own eye.
Having been pushed onto the ropes by Eric, some of us tried to punch on the rebound with examples of where urban renewal had to be thought through on a large scale, and, of course, large space needs for single occupiers. Nevertheless, I sensed that he made some progress in his amusingly presented challenge; maybe we need to plan things in a large framework, but perhaps most occupiers are telling us that 'smaller is beautiful'.
Michael Mallinson
To get a copy of the PowerPoint presentation please go to the link below, which is available through March 31, 2010:
Download presentation here
Pow! Straight between the eyes! Eric confronted us, at our lunch on 23rd March 2010, with the idea that, when it comes to development, we all think too big. He has been practising small-scale, low-cost, high-speed development for many years, with considerable financial and productive success; he wonders why most of us get caught up in 'comprehensive' development, always seeking to expand both the envelope of the sites with which we deal, and their conceptual framework.
The answer to that question lies, for him, in the mindset of the professionals involved. Perhaps reflecting one of the fundamental fallacies of professionalism, everything has been made more complicated than it needs to be; whilst he didn’t make the charge, more complication may lead to more fees. Thrusting aside such a base motive, there is a natural tendency amongst intelligent people to make things ever-more complicated. We have fallen for that tendency, with deleterious effects.
In the terms of the development process, it has greatly expanded the timescale for renewing our urban fabric, and increases the risk that, by the time a development is completed, the world will have moved on in some important respect. The larger new structures created may also have shorter productive lives, thus accelerating the cycle of disruptive development. Most existing structures, well-set in their social environment, are surprisingly adaptable, and adaptation may be better, and more profitable, than reaching for the demolition ball and trying to make the figures work by enlarging the enterprise. Whilst 'sustainability' has rightly become a buzz-word, large buildings encourage the restriction of that word to the building itself, rather than building plus environment.
Apart from this, big tends to be less socially conducive -– large tower cranes show a lack of respect for the local society into which they are introduced. Large developments also encourage the developer to think too much of the interior, and too little of the urban context, in social terms, into which the building is being inserted. In my own experience, I recall my dismay at the pot-holed roads and cracked pavements that surrounded some gleaming new creation. I blamed the local authority, but Eric might argue that I should have seen the beam in my own eye.
Having been pushed onto the ropes by Eric, some of us tried to punch on the rebound with examples of where urban renewal had to be thought through on a large scale, and, of course, large space needs for single occupiers. Nevertheless, I sensed that he made some progress in his amusingly presented challenge; maybe we need to plan things in a large framework, but perhaps most occupiers are telling us that 'smaller is beautiful'.
Michael Mallinson
To get a copy of the PowerPoint presentation please go to the link below, which is available through March 31, 2010:
Download presentation here
Friday, January 22, 2010
Investing in the Recovery
"What is Hot? And What is NOT For 2010 and Beyond?"
a presentation by Dr Tony McGough, Global Head of Forecasting DTZ.
Tony did well in flying around the world in twelve minutes analysing real estate investment opportunities. His talk had several dimensions -– risk and length of investment. Tony felt that investors could handle the big roller coaster rides over the medium term (ten years). However, if one was just looking at the short term (up to five years), then one should go for stability and minimal risk.
For the Asia Pacific region, China fits the roller coaster ride for the medium term whereas Australia was more stable and for the short term. The developing economies were the ones that would see booms and busts in the development cycle as well as suffering from political risk. China has good potential long term growth. The second tier Chinese cities with circa 40m people should be on the radar screen. Retail rents here did not fall.
Continental Europe was a tale of two halves -– the East and the West. Central and Eastern Europe were badly hit in the downturn as secondary property prices were very expensive. For the medium term, places such as Prague and Warsaw were identified as opportunities, not Bulgaria or the Ukraine. Go west if one was looking for stability and if one did not have the stomach for risk.
The UK has recovered with prime product leading the charge. For IPD, all commercial property has seen a 100bps fall in yields, but in reality secondary property was not worth this adjustment. One needed to be mindful that the UK would have a slow economic recovery and would have to pay off all that government debt.
In the Americas, US rents have generally declined, with New York City as the exception. One needed to be mindful about the general lack of planning controls in the US and its impact on supply. South American governments needed to become less corrupt if more property investment was to happen there.
Overlaying all of this was the panorama of world global cities. They were definitely in a class of their own. Tony felt that the historical reason of why they existed was a good enough reason for their continued prosperity. London City rents were much closer aligned to world GDP than domestic UK GDP. London, Paris New York City, Frankfurt (which apparently keeps trying), Hong Kong and Tokyo were the main global cities. Shanghai was an upstart. Dubai was a city which forced itself on you for global attention, but had not really made the grade.
Where to invest and where to avoid was all down to the degree of property development, how it could be controlled, the security of income and the specific country. Investors needed to have their eyes wide open when investing in developing economies. If one has the stomach and the requisite timeline, then there were opportunities on a selective basis as outlined above.
DR. K. A. SIERACKI
a presentation by Dr Tony McGough, Global Head of Forecasting DTZ.
Tony did well in flying around the world in twelve minutes analysing real estate investment opportunities. His talk had several dimensions -– risk and length of investment. Tony felt that investors could handle the big roller coaster rides over the medium term (ten years). However, if one was just looking at the short term (up to five years), then one should go for stability and minimal risk.
For the Asia Pacific region, China fits the roller coaster ride for the medium term whereas Australia was more stable and for the short term. The developing economies were the ones that would see booms and busts in the development cycle as well as suffering from political risk. China has good potential long term growth. The second tier Chinese cities with circa 40m people should be on the radar screen. Retail rents here did not fall.
Continental Europe was a tale of two halves -– the East and the West. Central and Eastern Europe were badly hit in the downturn as secondary property prices were very expensive. For the medium term, places such as Prague and Warsaw were identified as opportunities, not Bulgaria or the Ukraine. Go west if one was looking for stability and if one did not have the stomach for risk.
The UK has recovered with prime product leading the charge. For IPD, all commercial property has seen a 100bps fall in yields, but in reality secondary property was not worth this adjustment. One needed to be mindful that the UK would have a slow economic recovery and would have to pay off all that government debt.
In the Americas, US rents have generally declined, with New York City as the exception. One needed to be mindful about the general lack of planning controls in the US and its impact on supply. South American governments needed to become less corrupt if more property investment was to happen there.
Overlaying all of this was the panorama of world global cities. They were definitely in a class of their own. Tony felt that the historical reason of why they existed was a good enough reason for their continued prosperity. London City rents were much closer aligned to world GDP than domestic UK GDP. London, Paris New York City, Frankfurt (which apparently keeps trying), Hong Kong and Tokyo were the main global cities. Shanghai was an upstart. Dubai was a city which forced itself on you for global attention, but had not really made the grade.
Where to invest and where to avoid was all down to the degree of property development, how it could be controlled, the security of income and the specific country. Investors needed to have their eyes wide open when investing in developing economies. If one has the stomach and the requisite timeline, then there were opportunities on a selective basis as outlined above.
DR. K. A. SIERACKI
Monday, December 14, 2009
The Spanish Property Market
'The Spanish Property Market – is the fiesta over for the time being?'
Imma Vall, Associate at Property Market Analysis (PMA), has been analysing the Spanish Property market for the past 5 years, and she demonstrated to us in her talk at our lunch on 10th December 2009 her mastery of the subject, giving us her ideas with flair and humour – but it was a bit like being a cheer-leader at a wake!
Spain has suffered more than most in the current recession, with unemployment approaching 19%, economy decline of 3.8% and running, and profound Budget deficits – it almost made an Englishman feel he was well off and should be thanking Alastair Darling. Imma had no doubt, therefore, that the fiesta was indeed over; it was now the time of the hangover which she could see lasting for 2 years at least. Addressing commercial property, there was an over-supply of offices and retail, with many prestigious schemes being mothballed whilst part-built – ghosts that may haunt the Spanish skyline for some time to come. For built-out vacant office space, lettings were a triumph for the letting agent, and of only partial value to the landlord as rent levels have tumbled c 20% and rent-free periods of 1 year in a 5 year lease were not uncommon. In retail, the larger Spanish companies were surviving, but their life-support comprised closure of units in Spain and reliance on foreign units; it was not uncommon for new shopping centres to open with 40% occupancy – 60% would be a dream. Consequently developers are in trouble across the board.
Against this depressing back drop at the 'real' level, there was a surprisingly ebullient investment market for anything of quality -- prime site, good tenant. Beyond that, darkness, but, for the farsighted the outline of genuine value. However, if you need finance, no way! Bank lending is effectively unavailable; even for a good client and a bank wishing to help, there is no possibility of syndication, and thus no deal. To those at the lunch, this was something of a surprise, as our impression was that Spanish Banks had come out quite well from the 'credit crunch'.
Looking to the future, Imma reminded us that the Spanish property market has always been more volatile than most. In large part this has arisen from the economic dominance of construction companies – give them money they will build, without much apparent consciousness of market cycles. In answer to a question, she thought that this might continue to be true in the future – a cautionary thought for a putative investor. However, for commercial space, particularly offices, Spain now had a considerable price advantage; present value levels, anyway in good locations, should, in principle, only go in one direction, but the date of going was not in next year’s diary. Nevertheless, we should not forget that Spain is often the point-of-entry of choice for the burgeoning South America economies.
Several questioners raised the problems of the Spanish Residential market. This, Imma agreed, is in greater gloom than commercial property, with a profusion of its own mothballed ghosts. There was little chance of the Government acting as ‘white knight’ because politicians have chosen to demonise residential developers. A 4-year recovery profile seemed the most optimistic possible.
Not the happiest of lunches, then, but in the best of company, and with a talented guide to the body under dissection – No! Not as bad as that! It will come back to life. Really! And perhaps the best time to buy a corpse is just before it revives.
Michael Mallinson
Imma Vall, Associate at Property Market Analysis (PMA), has been analysing the Spanish Property market for the past 5 years, and she demonstrated to us in her talk at our lunch on 10th December 2009 her mastery of the subject, giving us her ideas with flair and humour – but it was a bit like being a cheer-leader at a wake!
Spain has suffered more than most in the current recession, with unemployment approaching 19%, economy decline of 3.8% and running, and profound Budget deficits – it almost made an Englishman feel he was well off and should be thanking Alastair Darling. Imma had no doubt, therefore, that the fiesta was indeed over; it was now the time of the hangover which she could see lasting for 2 years at least. Addressing commercial property, there was an over-supply of offices and retail, with many prestigious schemes being mothballed whilst part-built – ghosts that may haunt the Spanish skyline for some time to come. For built-out vacant office space, lettings were a triumph for the letting agent, and of only partial value to the landlord as rent levels have tumbled c 20% and rent-free periods of 1 year in a 5 year lease were not uncommon. In retail, the larger Spanish companies were surviving, but their life-support comprised closure of units in Spain and reliance on foreign units; it was not uncommon for new shopping centres to open with 40% occupancy – 60% would be a dream. Consequently developers are in trouble across the board.
Against this depressing back drop at the 'real' level, there was a surprisingly ebullient investment market for anything of quality -- prime site, good tenant. Beyond that, darkness, but, for the farsighted the outline of genuine value. However, if you need finance, no way! Bank lending is effectively unavailable; even for a good client and a bank wishing to help, there is no possibility of syndication, and thus no deal. To those at the lunch, this was something of a surprise, as our impression was that Spanish Banks had come out quite well from the 'credit crunch'.
Looking to the future, Imma reminded us that the Spanish property market has always been more volatile than most. In large part this has arisen from the economic dominance of construction companies – give them money they will build, without much apparent consciousness of market cycles. In answer to a question, she thought that this might continue to be true in the future – a cautionary thought for a putative investor. However, for commercial space, particularly offices, Spain now had a considerable price advantage; present value levels, anyway in good locations, should, in principle, only go in one direction, but the date of going was not in next year’s diary. Nevertheless, we should not forget that Spain is often the point-of-entry of choice for the burgeoning South America economies.
Several questioners raised the problems of the Spanish Residential market. This, Imma agreed, is in greater gloom than commercial property, with a profusion of its own mothballed ghosts. There was little chance of the Government acting as ‘white knight’ because politicians have chosen to demonise residential developers. A 4-year recovery profile seemed the most optimistic possible.
Not the happiest of lunches, then, but in the best of company, and with a talented guide to the body under dissection – No! Not as bad as that! It will come back to life. Really! And perhaps the best time to buy a corpse is just before it revives.
Michael Mallinson
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