The year 2009 began on a gloomy note around the globe but as it comes to a close, some property markets have begun showing signs of recovery from the global economic turmoil although some property experts remain cautiously optimistic on the outlook for 2010.

Most property consultancies in the Asia Pacific, the UK and the US contacted by City & Country say they expect growth in 2010 but some forecast a stagnant market.

While the impact of the global downturn on real estate varies in each country, generally, it is the office space sub-sector that has suffered the biggest blow.

Consultancies familiar with Dubai have not responded to queries about the impact of the crisis that hit the city-state. On Nov 25, government-owned Dubai World rocked global markets when it asked its creditors for a standstill on US$59 billion (RM202 billion) in debt linked to its two main property units, Nakheel and Limitless World. Dubai World has since revealed details of a restructuring plan to repay a portion of the debt worth U$26 billion.

On Dec 14, Abu Dhabi stepped in with a US$10 billion bailout. The aid was delivered on Dec 16 in the form of bonds.

Before Nakheel’s problems were publicised, Cluttons LLP in its Dubai property market overview, released in October 2009, had said housing prices made average gains of 38% from January to August 2008. This was followed by huge losses over the ensuing six months.

Read on for the foreign consultants’ review of 2009 and forecast for 2010.

Carlby Xie
Head of Research and Advisory
Colliers International North China
Base: Beijing, China
The overall mass market has recovered substantially after 4Q2008 due to pent-up demand and favourable government policies and mortgage incentives.

In 1Q2009, the luxury housing sector was soft. Investors adopted a “wait-and-see” attitude on the back of higher vacancies. The market picked up significantly in 2Q2009 and improved further in 3Q2009, driven by an economic rebound and investors’ inflation hedging moves. Prices of luxury apartments in Beijing rose from RMB29,866 (RM15,030) per sq m (psm) in 3Q2008 to RMB30,865 (RM15,544) psm in 3Q2009, up 3.34% y-o-y.

Going forward, we expect the luxury residential market to improve further due to relocation and upgrading. Rents are likely to bottom out in six months while capital values should continue to rise.

Office space
Despite efforts by the local governments to stabilise the market, the overall vacancy rate continued to rise. Demand picked up in 3Q2009, with domestic financial institutions taking the lead.

Going forward, the vacancy of Grade A office market is forecast to peak in 2010 before declining in 2011 and 2012, given limited new supply. However, values will definitely continue to improve as they have been doing since early this year.

Narumon Rodsiravoraphat
Senior Manager, Commercial
Colliers International Thailand
Base: Bangkok, Thailand

Office space
This has been a tough year with total take-up of about 75,000 sq m, short of the 100,000 sq m forecast. There has been no major office relocation in Bangkok as fit-out cost is the major consideration.

Overall, Bangkok office market rental rates have dropped by 5% to 10% from early 2009 to 3Q. The drop is higher for buildings with high vacancies and those outside the prime or central business district area.

The market is likely to stay weak for 1H2010, with more relocations in 2H2010. The global economic situation and local politics will affect overall sentiment, but the lack of significant new supply in 2010 should keep rates relatively stable.

Antony Picon
Senior Manager, Research and Advisory
Colliers International Thailand
Base: Bangkok, Thailand

This has been a difficult year, with global economic downturn and domestic political uncertainties. Transactions in 3Q2009, however, rose by 20% over 2Q2009. Transactions for 2009 are forecast to be some 70,000 housing units or 4% to 5% lower than 2008.

New high-end condo launches have slowed with developers focusing on projects aimed at the middle and upper-middle income segments located primarily in the suburbs, especially near the new airport link, subway and sky train extensions.

Developers are focusing on smaller sizes priced at US$30,000 (RM103,125) to US$100,000 (RM343,900) each, targeted at the biggest buying segment, with monthly income of less than US$1,500.

The 1H2010 is expected to be buoyant due to the impact of the government’s economic stimulus measures, low interest rates, potential extension of tax breaks for buyers, relaxation of the Board of Investment’s regulations for low and mid-income housing, more affordable housing stocks and rising consumer confidence. The 2H2010 is likely to see higher interest rates. Continuing global economic uncertainties and ongoing, although easing, political concerns, could still adversely affect sentiment in 2010.

Andrew Brown
Country Head
Jones Lang LaSalle Vietnam
Base: Ho Chi Minh City, Vietnam

The high-end residential market was relatively quiet with low trading volumes in 2009. Pricing, however, remained quite stable though, overall, it was down slightly for the year. 

The low to mid-end housing market has performed very well, being sought after by locals. Values of high-rise condos in the year remained relatively stable or lower by up to 10%. We expect a significant supply of low to mid-end units priced from US$800 to US$1,500 per square m. The market performance will be largely dependent on the monetary policies and measures taken by the government and State Bank.

Office space
Rents have been moving south in 2009. Despite initial signs of economic recovery in 2H2009, the overall market has stayed weak. Most corporations deferred growth plans and mitigated costs. New supply expanded vacancy to about 20%.

Average Grade A office rents in Ho Chi Minh City have declined 30% over the past 12 months, with the following breakdown: Grade A — declined 30%; Grade B — 30%; Grade C — 27%; and suburban — 8.50%. Overall average market decline in the last 12 months is 26%.

The pressure on export markets, service providers and financial markets will continue to affect office demand for the rest of 2009 and 2010. Significant new supply and weak occupancy in the next 12 to 18 months will further put pressure on overall rental levels.

Vietnam Dong
The depreciation in the Vietnam dong (VND) and monetary policies will both impact the property market. When confronted with the threat of high inflation and VND devaluation against the US dollar, investors will rush to put their money in gold, real estate and the US dollar. So, the VND depreciation will push up demand for homes.

Anthony Duggan
Partner, Head of Research
Drivers Jonas LLP   Base: London, United Kingdom

Against expectations, London residential values will end 2009 higher than at the start of 2009. The rapid decline in prices in 2008 and the start of 2009 stopped sharply in late spring as a rising number of buyers, including a large number of overseas cash buyers, competed for limited stock. 

A key difference between this recession and previous downturns in the UK residential property is that, with interest rates so low, the level of repossessions by lenders has been small and so the overall stock of properties coming to the market has been far lower than in the past.
The prime residential market is likely to end the year in positive territory (up 1% over the year) as the recovery in 2H2009 wipes out 1H losses.

The rapid turnaround in the UK residential market and subsequent recovery in prices may be unsustainable in 2010 as factors, such as the lack of finance, drag down performance. It looks likely that pricing in the UK market will stabilise or indeed fall back a little as the improving sentiment encourages more sellers to come forward — creating supply that cannot be matched by demand in the poor credit environment. 

However, London remains a very special place with a global buyer pool and equity-rich transaction base and is likely to be more resilient, but not immune, to the slowdown.

Office space
The year started terribly for landlords and investors with 1Q2009 recording the lowest ever volume of occupational office transactions across London. However, as 2009 progressed, things have slowly improved.

Indeed, rents in both the City and West End have now bottomed out; with Prime West End rents having fallen 42% from the peak in 2007 and City rents 36%. The market is seeing increasing interest from occupiers and shortages of certain types of space are starting to emerge in some locations.

Despite weak (albeit improving) occupational markets, the investment market has been red hot. The year has seen top quality London property assets being pursued by a range of investors, particularly overseas buyers domiciled in places as far away as Singapore, Malaysia, Russia, Australia and India as well as the more traditional German and Spanish investors.

UK property ownership, particularly Central London offices, has become much more cosmopolitan in the last 15 years and this is currently intensifying even further. Factors, including the weak sterling, attractive current pricing, the lure of London as a global city and its landlord-friendly leases, are driving purchaser decisions at the moment.

Prime City values have fallen 9% over the year — a significant improvement from the 43% annual fall recorded in February 2009. Prime West End values have fallen 7% over the year (-47% in the year to November 2008). Current Prime City rents are £42.50 (RM236) psf. City rents have fallen 19% over the year. The peak-to-trough fall was 36%. Current West End Prime rents are £70 psf (RM388). West End rents have fallen 22% over the year (42% fall peak to trough).

The investment markets look to remain hot into the new year, with little let-up in the money chasing top quality real estate. However, as pricing becomes less attractive due to the yield compression seen during the recovery, we may see a period of flat growth next year as the market pauses for breath. Investors will be concentrating less on relative pricing and more on the underlying fundamentals of the occupier market and its expected performance in a low economic growth environment.

Simon Lo
Director, Research and Advisory
Colliers International Hong Kong
Base: Hong Kong, China

The market has turned around sharply since 2Q2009, registering a YTD (January-October) growth of 40%. For luxury residential units, the y-o-y change was 18% as of October 2009.

Prices have not only recovered to pre-crisis levels as at October 2009 but some individual luxury units have surpassed its previous high registered in 2008.

The leasing market has been catching up as demand strengthens. Prices could see another 10% growth in 2010, while rents will edge up 7%.

Office space
The office space sales market is very strong but occupancy has yet to catch up. The y-o-y change of prices went up by 1% as of October 2009. From March to October 2009, however, prices have rebounded 38%.

Rents bottomed out in June 2009 and grew by about 3% in July and October 2009. Prime buildings in central business district command strong demand but the fringe sub-markets were flat. The Wanchai/Causeway Bay district is under downward pressure.

Overall, y-o-y change of rents is 32% as of October 2009 across the market. We anticipate a rental growth of 8% in 2010 with central business district being the key sub-market driving the market up.

Jarrod Frazer
Head, Residential Mortgage Valuations
CB Richard Ellis Australia
Base: Melbourne, Australia

The residential market in Melbourne has shown considerable growth throughout 2009, driven by a population boom and lack of stock on the market. Sales activity is being spread across all segments of the market, with notable price rises in many prestigious suburbs.

The housing frenzy in Melbourne is perhaps best illustrated by recent auction clearance rates. In the week ended Oct 25,  2009, there were 884 auctions — the highest number all year — yet the clearance rate was a strong 83% (Real Estate Institute of Victoria). The total volume of Melbourne house sales for the year ended September 2009 is equal to 46,865 (Residex, a data provider of real estate-related information in Australia), the highest of all states and territories.

The median house price for Melbourne has increased by 5% to 7% during 2009 (Real Estate Institute of Victoria). This followed a dip in the market from 2008; the maket recovered throughout 2009.  Apartment prices in Melbourne have increased more modestly throughout 2009, by 3% to 5%.

Glenn Lampard
Associate Director, Global Research and Consulting
CB Richard Ellis Australia
Base: Melbourne, Australia

Office space
The economic downturn made for a very subdued beginning for 2009 across all property sectors, but the Melbourne central business district office market proved to be quite resilient. Vacancy rates have remained below 5% for much of the year as demand, particularly for sub-lease space, proved to be stronger than anticipated.

Melbourne’s prime quality office buildings have lost around 9% of their value y-o-y, due primarily to a softening of market yields.

The market softening, which took place in 1H2009, has now abated. In fact, there is now a lack of prime quality office buildings for sale.

With vacancy currently hovering around 5% and forecast to peak at 7% within the next six months, leasing incentive levels have stabilised. There were no new building start-ups in the last 12 months.

Following the consolidation, rental growth would be expected from 2011.

Tay Huey Ying
Director, Research and Advisory
Colliers International Singapore
Base: Singapore

On the whole, the residential market had a resounding year  driven by strong liquidity in the market, pent-up demand from Housing Development Board upgraders that was supported by strengthening resale flat prices, the low interest rate environment as well as more affordable price levels. Sales in the primary market look set to smash the previous record of 14,811 units established in 2007, judging from the 13,639 units transacted in the first 10 months of 2009, which is just 7.9% shy of 2007’s peak levels.

This year was also the year that “Mickey Mouse” units found favour with many buyers for their affordable price — many of these tiny units that measured less than 50 sq m fall within the S$250,001 (RM612,343) to S$500,000 (RM1,224,682) price band.

Overall, prices recorded a strong rebound from their trough in 2Q2009, when the Urban Redevelopment Authority all-residential property price index surged by 15.8% q-o-q in 3Q2009, the highest quarterly increase in almost three decades with the last high of 27.2% recorded in 1Q1981.

This prompted the government to introduce measures to cool the property market on Sept 14, 2009.

New benchmark price levels were also established in the mass-market segment when Far East Organisation launched its Centro Residences at Ang Mo Kio Avenue 8 in July 2009 at above S$1,000 (RM2,449) psf.

Average capital values of luxury and super luxury apartments registered a positive growth of 3.6% in the first nine months of 2009 to S$2,799 (RM6,855) psf. However, compared to their peak in 1Q2008, average capital values are still 11.8% lower.

The private residential market should stay healthy in light of the improving economic prospects (barring any unforeseen shocks). While developers’ sales volume is likely to taper off from 2009’s high, it is forecast to hover in the more sustainable level of 7,000 to 9,000 units.

Home prices should continue to inch up, although the pace of growth is likely to moderate from 3Q2009’s level of 15.8% q-o-q to a more sustainable rate of 3% to 5% per quarter, given the government’s stance that more measures could be introduced should home prices trend up uncontrollably.

Rents could register some upside in 2010 in the light of improving business environment and confidence.

Office space
The market was hit hard by the global financial crisis in 1H2009, with rents and capital values losing substantial ground amid severe demand and supply imbalance. Market conditions improved in 2H2009 on the back of positive economic developments in Singapore as well as in the global arena.

Demand for office space saw a contraction of some 570,000 sq ft in the first six months of the year. Monthly average gross rents of Grade A office space in the central business district dived 21.8% and 26.2% in 1Q and 2Q2009 to S$9.12 (RM22.34) psf and S$6.73 (RM16.48) psf respectively, in 1H2009. Similarly average capital values of Grade A freehold space fell 19.3% and 9.1% in the first 2Qs of 2009, respectively, to S$1,668 (RM4,085) psf and S$1,517 (RM3,715) psf during that time.

Business conditions became rosier. In 2H2009, Singapore snapped out of a recession in 3Q2009 by posting its first y-o-y growth of 0.6%, since 4Q2008.

Demand for office space turned around in 3Q2009, but substantial new completion of close to 1.2 million sq ft in that quarter saw island-wide vacancy rate continuing to climb to 12.2% in 3Q2009 from 10.8% in 2Q2009. In the nine months ended September 2009, rents of Grade A office space have declined by 45.9%.

In light of the expected continued economic recovery in 2010, businesses’ sentiment and confidence are likely to continue to strengthen. Nevertheless, the growth in demand is unlikely to match that of supply, estimated to be in excess of 2.7 million sq ft in 2010.

Hence, office rents are likely to remain soft in 1H2010 although the pace of declines could moderate further to within 5% for the six-month period. The current office downcycle could bottom out in 2H2010.

Anuj Puri
Chairman and Country Head
Jones Lang LaSalle Meghraj
Base: Mumbai, India

The city was already in the peak of correction in early 2009, with a fall in demand and values. Affordable housing demand for mid-range homes ground almost to a halt.

Following the election and an upsurge in the economy, sentiment improved with a slow but steady rise in demand. Prices have fallen by 25% to 40%, depending on location and typology. The fall was not specific to high or low-rise, but rather to location.

We expect the market to improve significantly in 2010. New projects that have been put on hold are scheduled to be resumed and absorption will be healthy.

Office space
The office market had a tough time in 2009, and continues to be tough. The dip in interest by the Information Technology-enabled Services (ITeS) and financial sectors is taking its toll.
Values have corrected by 20% to 35%, especially in the central business district areas and in the more preferred suburbs, while rents have fallen by 30% to 40%, depending on location and project typology.

Demand for commercial real estate, especially in the financial capital, is a function of the global economy’s performance. With the marginal economic improvement we have witnessed in the last quarter of 2009, there has been a noticeable but by no means dramatic, increase in inquiries.

Areas like Navi Mumbai, Andheri and Bandra Kurla Complex are back in demand, but the demand is cautious. Overall, we do not expect to see a significant reversal in fortunes for Mumbai’s commercial real estate market in the first three quarters of 2010.

James Delmonte
Vice-President and Director of Research
Jones Lang LaSalle
Base: New York, United States

Office space
The recession and lack of clarity in the financial markets resulted in one of the steepest declines in leasing activity on record for the Manhattan market. Vacancy rates rose sharply for every building type and market in 1H2009. The vacancy rates in some submarkets have doubled or tripled since 2007.

However, as the US moves slowly out of recession, the New York office market has shown signs of stability. A rise in leasing activities during the summer months came as a surprise. Midtown’s vacancy rate has hovered in the 14.5% range since late spring. Because the last quarter of the year is typically the most active, vacancy should hold near that mark as 2009 draws to a close.

Midtown Class A asking rents are off 30% since last year. Midtown Manhattan is the largest and most expensive market in the US. People who have visited New York will know this as the area around Rockefeller Center, Fifth Avenue, and Park Avenue.

Overall, Manhattan rents are off 25% since last year. We expect the vacancy rate to peak in 2010 and to fall gradually as employment turns positive. Space will continue to come into the market, albeit at a slower pace, through the next 12 months. Downtown could be the exception, where consolidation among the district’s largest tenants has yet to be finalised. Major dispositions of Downtown’s trophy properties are still possible.

While asking rents will not reach a trough until perhaps late 2010 or 2011, we believe net effective rents (taking rents that include owner concessions) are near the bottom. The most likely scenario is several quarters of languishing rents. However, because Manhattan is ultimately supply constrained — and new construction is expensive and lengthy — there is the risk that rents could accelerate sooner and at a greater pace than currently projected. For the trophy market, this could come as early as 2012.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 787, Dec 28, 2009-Jan 10, 2010