Vacancies at US strip malls hit an 18-year high in the fourth quarter and the vacancy rate for large regional malls reached the highest in at least 10 years, according to real estate research firm Reis Inc.

Strip malls – neighbourhood and community shopping centres typically anchored by grocery or drug stores – had a vacancy rate of 10.6 per cent in the fourth quarter, surpassing the high set in 1991, Reis economist Ryan Severino said in a report released yesterday. The early 1990s is a period often referred to as the commercial real estate depression.

‘Our outlook for retail properties as a whole is bleak,’ Mr Severino said in a statement. ‘Until we see stabilisation and recovery take root in both consumer spending and business spending and employment, we do not foresee a recovery in the retail sector until late 2012 at the earliest.’

Reis said that continuing high unemployment and inconsistent consumer spending will weigh heavily on retail properties for at least another 18 to 24 months.

It expected the vacancy rate at neighbourhood and community centres to keep rising, and rents to continue falling till 2011.

The deteriorating fundamentals could inflict strong headwinds for real estate companies such as Pennsylvania Real Estate Investment Trust, Macerich Co, Kite Realty Group Trust, Glimcher Realty Trust General Growth Properties Inc and Equity One Inc.

At the same time, it also could provide buying opportunities for cash-rich companies, such as Simon Property Group Inc and Kimco Realty Corp.

Asking rent at US strip malls fell 0.5 per cent from the third quarter to US$19.12 per square foot (psf) in the fourth quarter, or down 2.05 per cent for the year. Factoring in months of free rent and the landlord’s portion of the cost for interiors, effective rent fell 0.8 per cent to US$16.75 psf, wiping out rent gains over the past nearly four years.

For the first time in Reis’ 29 years of tracking the fundamentals of strip malls, effective rent in all of the 77 markets it covers declined.

‘It is daunting to observe this acceleration in decline in what has traditionally been regarded as a stable property type,’ Mr Severino said.

The vacancy rate at large regional malls rose to 8.8 per cent from 8.6 per cent the third quarter. It was the highest vacancy rate for US malls since Reis began tracking mall performance. Asking rent fell 0.4 per cent to US$39.03 psf, the lowest since the second quarter of 2006.

‘This is the first time in almost 10 years of quarterly history that Reis has observed rent declines for five straight quarters, and the year-over-year decline of negative 3.6 per cent is the largest magnitude of deterioration over a 12-month period on record as well,’ Mr Severino said.

Source: Business Times, 7 Jan 2010

Macklowe Properties and its new partner, real estate fund manager CIM Group, have signed a deal to purchase debt in order to take control of the site of the former Drake Hotel, a person familiar with the deal said on Tuesday.

The deal, which calls for Macklowe to buy back the debt at a discount with the help of CIM, is signed but has not yet closed, the source said. A deal would help founder Harry Macklowe salvage his investment of more than US$220 million in the property.

Macklowe Properties defaulted upon the loans of several properties, including the Drake site at Park Avenue and 56th Street, when credit began to dry up in late 2007.

Mr Macklowe, one of New York’s most well known developers, became symbolic of the recent US commercial real estate bust when he was forced to sell the General Motors Building after defaulting on US$7 billion in debt that he used to buy seven office buildings in 2007.

Macklowe Properties spent more than US$600 million – including US$418 million for the 2006 purchase – in mortgage and other debt to buy and demolish the Drake Hotel. He planned to build a hotel-condominium project on the Drake site and a neighbouring property, according to court papers.

Deutsche Bank AG originated the senior mortgage on the Drake property, sliced it up and sold off the pieces to investors including iStar Financial Inc, Sorin Capital Management, Highland Capital Management and several other lenders, the source said. The mortgages also included about US$40 million in accrued interest, another source said.

However, in 2008 Deutsche Bank, acting as the agent for the lenders, initiated foreclosure on the sites. By that time, the unpaid principal on the mortgages was US$483 million, according to court documents. Each debt slice carries different risks and the lenders now can be paid anywhere from more than 90 per cent to nothing, the sources said.

Since 2006, Mr Macklowe has repaid about US$150 million of junior debt, making his personal investment in the deal more than US$220 million.

A representative of Macklowe Properties was not available for comment on Tuesday. A spokesman for CIM Group declined to comment.

Source: Business Times, 7 Jan 2010

Its median price slid 10% to US$810,000 in Q4 from a year earlier, as Manhattan records 10% unemployment

Manhattan apartment prices fell for a third consecutive quarter as Wall Street job losses drained demand and the decline in co-op and condominium values reached 21 percent since the market peak.

The median price slid 10 per cent to US$810,000 in the fourth quarter from a year earlier, New York appraiser Miller Samuel Inc and broker Prudential Douglas Elliman Real Estate said on Tuesday. The median price hit US$1.03 million at the top of the market in 2008. The number of sales jumped 8.4 per cent to 2,473 in the three months ended Dec 31.

Values continued to fall across apartments of all sizes as New York City recorded 10 per cent unemployment in November. Fallout from the recession and credit crisis that cost more than 184,000 finance jobs in the Americas is still hurting New York.

The city lost 25,200 finance jobs in the 12 months ending Nov 30, the state Labor Department said on Dec 17. ‘We have some big macro issues ahead of us,’ said Jonathan Miller, president of Miller Samuel. ‘My view is: We’re not done.’

Five Manhattan property reports published on Tuesday showed price declines for the fourth quarter from a year earlier. The Corcoran Group, a New York-based broker that conducts its survey with the research company PropertyShark.com, said the median apartment price fell 15 per cent. Brown Harris Stevens and Halstead Property LLC put the decline at 11 per cent and StreetEasy.com said it was 10 per cent.

The number of apartments for sale dropped 25 per cent to 6,851, according to Miller Samuel and Prudential. The 10-year average of quarterly inventory for sale is 7,094 units.

‘For most people, interest rates were great and you could buy into the New York City market at a better price than you could have in the last couple of years,’ said Dottie Herman, president of Prudential Douglas Elliman.

Mr Miller called the decline in inventory ‘an anomaly’ brought on by a wave of buyer interest built up during the first half of 2009. More than 6,000 apartments in new developments have yet to be listed for sale, he said.

The biggest price reduction in the past three months was for a 43rd-floor, two-bedroom condominium in the Financial District’s William Beaver House, according to StreetEasy. The price was cut to US$1.66 million from US$3.05 million and the unit sold 10 days later for $1.53 million, according to StreetEasy.

A smaller proportion of Manhattan apartment sellers discounted their listings in the fourth quarter. About 27 per cent of properties for sale carried price cuts, compared with 33 per cent a year ago, according to StreetEasy. Condo sellers cut an average of 7.8 per cent off their asking prices, while co-op sellers whittled an average of 7 per cent from prices in the three months ending Dec 31.

‘If we have not hit a bottom, we have definitely hit a level of resistance here,’ said Bill Staniford, chief executive officer of PropertyShark.com. ‘This is an area where buyers and sellers met and agreed there is value at this level.’

Studio apartments prices fell 11 per cent from a year earlier to a median of US$375,000, Miller Samuel and Prudential said. One-bedrooms dropped 7.6 per cent to US$661,000; two-bedrooms fell 23 per cent to US$1.24 million and three-bedrooms plunged 42 per cent to US$2.35 million.

Apartments with four or more bedrooms fell 38 per cent to a median price of US$5.4 million.

Three of the five most expensive closings of 2009 took place in the fourth quarter, according to StreetEasy. The priciest was a 12th-floor unit at 820 Fifth Ave bought by Ken Griffin, founder of Citadel Investment Group, for US$40 million. He bought the property from philanthropist Lily Safra and closed the deal last month.

Fourth-quarter sales of luxury apartments, defined as the top 10 per cent by price, increased 8.3 per cent from a year earlier to 247, according to Miller Samuel and Prudential. The median sales price fell 8.5 per cent to US$3.78 million.

South of 34th Street, sales at the Superior Ink Condominiums and Townhouses helped boost the average price for apartments with at least three-bedrooms by 39 per cent to US$4.67 million, according to Halstead and Brown Harris, both owned by Terra Holdings LLC.

‘A lot of those units were bought some time ago’, reflecting prices at the peak of the market, said Gregory Heym, chief economist for Terra Holdings.

On the East Side, between 57th and 96th streets, both condo and co-op prices dropped 21 per cent from a year ago, with condos selling for an average of US$1,094 a square foot and co-ops selling for US$806 a square foot, Corcoran said.

The West Side between 57th and 110th streets, the average price per square foot for co-ops fell 11 per cent to US$849, according to Corcoran and PropertyShark. The price of condos for re-sale increased 2 per cent to US$1,394 a foot. Prices of new developments in the neighbourhood plunged 38 per cent to US$1,400 a square foot.

New development sales declined all across Manhattan as lenders hesitated to finance purchases in buildings where less than 70 per cent of the units were sold, Mr Miller said. Sales at newly constructed buildings accounted for 19 per cent of transactions in the fourth quarter, compared with 38 per cent a year earlier, Mr Miller said.

‘Lenders are very wary of new construction because they’re worried about completion,’ he said.

The market reports issued on Tuesday are compiled from public records and brokers’ proprietary data.

Source: Business Times, 7 Jan 2010

Approvals to build new homes in Australia jumped a surprisingly strong 5.9 per cent in November, further evidence of a construction boom that will increasingly foster growth.

But yesterday’s data failed to sway market expectations which remain evenly split over whether the Reserve Bank of Australia (RBA) would raise rates again next month, with investors awaiting key job and inflation data due later this month.

Approvals for apartment blocks, a typically volatile sector that suffered during the crisis when funding dried up, led the way in November with a whopping 32 per cent jump.

That lifted total building approvals by a third from November last year, the biggest rise in 71/2 years.

‘Construction activity will be very buoyant in 2010, ensuring solid activity levels for firms in building material, construction and engineering sectors,’ said Craig James, an economist at the Commonwealth Bank.

Activity in non-residential approvals was equally impressive, with the value of work up 53 per cent during the month thanks largely to generous government stimulus spending on schools.

The overall strong report eclipsed a 1.9 per cent dip in approvals for new private houses, marking a pause after an 11-month rally.

Analysts at Commonwealth Bank say the construction boom could last two to three years and add 2-3 percentage points to economic growth.

This is without accounting for sizeable additional expenditure incurred by house buyers furnishing their new homes.

Indeed, the buoyant property market prompted the RBA to say last year it would be ‘disturbing’ if low mortgage rates led only to higher home prices, which are already at record highs, and not more home building.

It has since raised rates for all three months between October and December, becoming the first of G20 central banks to tighten policy.

Interbank futures are priced for a 50-50 chance of a 25-basis-point rate rise when the RBA next meet on Feb 2.

The RBA stunned investors last month when it said rates at 3.75 per cent were in a ‘normal’ range, cooling views it was on an aggressive tightening campaign.

Yet, some analysts still see the RBA tightening this year, with elevated house prices supporting spending.

Consumers are certainly jovial, judging from the data.

Sales of new vehicles rose to the highest level for any December on record, with demand boosted by tax breaks.

Unemployment is expected to have peaked at 5.8 per cent, with the job market forecast to recover this year. A survey yesterday showed employment picked up in the services sector even though growth in the industry halted in December.

Fundamentals back the case for higher home prices.

Immigration is at a record and the population is growing at its fastest in 40 years. These come at a time when house supply is tight, with construction languishing below historical averages.

Source: Business Times, 7 Jan 2010

It aims to curb speculation and prevent prices from rising rapidly

China will limit credit for some home purchases to reduce speculation and rein in surging prices, Housing Minister Jiang Weixin said.

The nation will ‘further restrict credit for the purchase of second homes and curb speculative housing investments,’ Mr Jiang said in a statement on the ministry’s Web site yesterday after an annual work meeting. He didn’t elaborate.

Premier Wen Jiabao pledged on Dec 27 to tackle ‘excessive’ real-estate gains in some cities.

Prices across 70 cities rose at the fastest pace in 16 months in November, fuelling concern that record lending and inflows of capital from abroad are creating asset bubbles in the world’s third-biggest economy.

‘They are trying to prevent a full-blown bubble,’ said Lee Wee Liat, a Hong Kong-based property analyst at Nomura International Hong Kong Ltd.

Mr Lee sees potential bubbles in real estate in cities including Beijing, Shanghai, Shenzhen and Guangzhou.

Mr Jiang said China will add to stocks of low-cost housing in cities with high prices. The government will also crack down on property hoarding by developers and fake pricing and sales, and ensure that housing demolition is legal, he said.

Xia Haijun, the chief executive officer of Evergrande Real Estate Group Ltd, told reporters in Hong Kong yesterday that the company is ‘not a developer that hoards land’.

Evergrande is negotiating with officials in Guangzhou over a site that newspapers said has been repossessed.

‘We should scrap or adjust local property policies launched last year that no longer comply with current macroeconomic goals,’ Mr Jiang said, without being more specific.

Premier Wen said last year that the government should use tools including taxes and loan interest rates to restrain property prices that have ‘risen too quickly in some areas’.

Developers listed in China dropped on Wednesday the most in two weeks on concern the government will implement a nationwide tax on the value of a property for the first time.

Speculation was fuelled by a Shanghai Securities News report which said China plans to expand a trial of a real-estate tax, citing an unidentified person close to the State Administration of Taxation.

China won’t introduce a property tax this year because the government wants to keep the real-estate market stable, Hingyin Lee, Colliers CRE plc’s director of research and advisory for eastern China, said at a briefing in Shanghai on Tuesday.

The government this month reimposed a sales tax on homes sold within five years of their purchase, after cutting the period to two years in January 2009 to bolster a flagging property market.

China may raise downpayment requirements for purchases of second homes to 50 per cent, Beijing Business Today reported on Dec 21, citing an unidentified person. The current level is 40 per cent, the newspaper said.

Local governments are already tightening property rules. In Shanghai, home buyers must prove they are first-time purchasers before benefiting from a reduced tax on transactions, the city government said Dec 31.

In the south, Shenzhen will start a three-month crackdown on property speculation from yesterday, China Business News reported, without citing anyone.

Authorities will inspect local developers to determine if they have conducted unlawful activities such as selling apartments before buildings are completed, false advertising and the hoarding of apartments, the newspaper said on its Web site.

In November, real-estate prices in 70 major cities rose 5.7 per cent from a year earlier, compared with 3.9 per cent in October. December’s figures are due to be released next week.

China’s policy makers are trying to ensure an economic rebound and at the same time prevent excessive liquidity in the financial system from creating bubbles in stocks and property.

Liu Mingkang, the nation’s top banking regulator, wrote in an opinion piece in Bloomberg News this week that ’structural bubbles threaten to emerge’.

Source: Business Times, 7 Jan 2010

China is working to introduce real-estate investment trusts, or Reits, under a trial programme, the People’s Bank of China said in a statement on its Web site yesterday, without giving more details.

Shanghai’s city government is considering a plan to allow brokerages or fund management companies to own a 51 per cent controlling stake in Reits, the China Securities Journal reported on Nov 5, citing people familiar with the matter.

Haitong Securities Co, China’s second-biggest brokerage by market value, was chosen for a pilot programme, the report said.

A real estate investment trust is an entity that invests in property and benefits from tax exemptions in return for distributing most of its earnings as dividends.

Source: Business Times, 7 Jan 2010

But rents in the rest of the UK expected to keep declining

Office rents in London are seen surging in 2010, boosted by rising confidence among financial tenants and tight supply, having fallen up to 40 per cent in the global financial crisis, a report said on Tuesday.

Property consultants King Sturge is forecasting prime rents in the City of London financial district to rise 10.5 per cent to £47.50 (S$106) per square foot (psf) by end-2010. Rents in the West End will rise 7.6 per cent to hit £70 psf, King Sturge said in its report.

The expected improvement in rents may ease investor fears that the UK commercial property market’s price rebound could be short-lived due to continued tenant weakness.

Recent threats by banks and other financial institutions to shift offices from the UK to other countries with friendlier tax jurisdictions are likely nothing more than ’sabre-rattling’, said Mark Bourne, King Sturge’s head of London Office Agency.

‘They are just using what they normally do, in terms of planning at the start of each year, to send a message to the government … the real impact on the UK market, I believe, will be negligible,’ Mr Bourne said at a press briefing.

British newspapers reported last month JPMorgan was mulling scaling back its new offices in London’s Canary Wharf, after the US bank’s CEO Jamie Dimon expressed concerns about a new tax on bankers’ bonuses in a call to finance minister Alistair Darling.

While London is poised for recovery, in the rest of the UK, where the peak-to-trough rental fall has been milder at up to 10 per cent, King Sturge predicts rents to keep declining due to weak demand, although at a slower pace than in 2009.

‘Regional markets relied heavily on local public sector deals to support take-up in the downturn, and may be hit harder as the UK government battles to cut its huge fiscal deficit post-election,’ Mr Bourne said.

Experts have said the poor outlook for the regional markets could further widen a pricing gap between prime commercial properties and lower-grade assets, likely postponing a broader sector recovery by five years or more.

‘The secondary market is affected by many issues at the moment, and a key one is with the occupational market is so tough … not a lot will happen until banks start lending significantly to prospective buyers again,’ King Sturge head of UK investments Neville Pritchard said.

Source: Business Times, 7 Jan 2010

THE show must go on. And at Suntec Singapore International Convention & Exhibition Centre, it has, downturn notwithstanding.

The meetings, incentives, conventions and exhibitions (MICE) venue hosted about 1,400 events and welcomed 6.7 million visitors in 2009, a 5 per cent increase in visitors from 2008.

All MICE sectors delivered robust growth, Suntec said in a statement. And it believes that it will do well again this year as it expects to host regular and new events.

Chief executive Pieter Idenburg said: ‘Having emerged from a challenging but fruitful year in 2009, 2010 will be significant for us. We will host several new and returning shows, with an exciting line-up of events that are paramount in their fields, such as the inaugural Youth Olympic Games.’

Events the venue is set to host this year include The Internet Show 2010, the 10th World Congress of Bio-ethics and 8th Asia-Pacific Harmonica Festival 2010.

Repeat events, such as the Singapore Garden Festival 2010 and CityScape Asia 2010, will also be held at the centre.

Source: Business Times, 7 Jan 2010

KASARA The Lake, an exclusive development of 13 luxury villas in ultra-posh Sentosa Cove, was formally launched yesterday after well-heeled VIPs snapped up half a dozen of them last month.

Six out of the seven villas put on sale initially were sold during the preview, open only to VIPs. Of those villas sold, the biggest 15,070 sq ft villa went for a little over $22 million.

The developer did not disclose just what type of VIPs the buyers were, except that three were Singaporean and the others foreign – Asian and European, including one Singapore permanent resident.

The positive response from Kasara’s preview despite the festive market lull reflected significant demand in the luxury property market, according to YTL Singapore managing director Kemmy Tan.

YTL Singapore is the developer of Kasara, as well as another project, Sandy Island, at Sentosa Cove.

The villas, ranging in size mainly from 9,000 sq ft to 10,000 sq ft, were launched at a price of about $1,610 per sq ft (psf). A single 14,600 sq foot villa is still up for grabs for anyone with a spare $15 million or $20 million or so.

Consultancy Savills Singapore managing director Michael Ng said the price would probably be raised gradually to $1,700 psf on average.

The posh development offers a view of the lake facing the Serapong golf course and a pool that has been designed to extend slightly above the lake amid a landscape of bamboo and eucalyptus trees.

The developer is counting on the prospect of the upcoming Sentosa integrated resort to help attract buyers.

Ms Tan said: ‘Foreign demand is increasing due to the presence of the integrated resorts, and Sentosa Cove, being the only area where foreigners can buy landed property, is well placed.’

DTZ South-east Asia executive director and head of consulting Ong Choon Fah said Singaporeans now formed a smaller proportion of buyers at the cove.

‘In the past two years, Singaporean buyers have decreased to 37 per cent (from about 50 per cent). The balance of 63 per cent are foreigners, permanent residents or companies.’ The profile of foreigners has widened to include those from Britain, the United States, Russia, Malaysia, India, Europe and Australia.

Ms Tan said the wealthy are gradually returning to the market, which is evident in deals done. Prices at Sentosa Cove rose to an average of $1,500 psf around the third quarter of last year from $1,100 psf to $1,200 psf in the first quarter of last year.

According to Savills’ analyses of Sentosa Cove Realis data, 80 per cent of transactions took place in the second half of last year when 25 sales were made – far higher than the five in the first half.

Savills said that 16 sales recorded in the fourth quarter did not include the sales of Kasara villas.

Ms Tan believes interested parties will buy now to take advantage of anticipated future price gains given the limited supply of about 320 properties at the cove and an expected upswing in demand.

Savills is suggesting that Sentosa Cove is undervalued.

‘The luxury end is a laggard. Investors are coming in now as they see a lot of upside in the high-end segment, where prices are still 25 per cent to 30 per cent away from the previous peak,’ said Mr Ng.

All bets seem to be on the high-end luxury market this year, according to industry players. They believe that if Kasara The Lake continues to be successful, this could encourage developers back into the high-end property segment.

Mrs Ong cited the example of CapitaLand’s recent Urban Suites launch, and speculated that projects located on the fringes of traditional prime districts might follow suit and get going again.

Source: Straits Times, 7 Jan 2010

With more visitors expected, more hotels are set to compete for guests

THE number of visitors to Singapore is likely to grow this year, but so will the number of hotels vying for a share of the pie, says CBRE Hotels.

The consultancy expects the hospitality industry to continue facing a challenging 2010, and room rates and room revenues could dip by up to 4 per cent on an annualised basis.

Occupancy rates of 74-78 per cent are achievable, CBRE Hotels reckons. But to fill 76 per cent of rooms, hotels might not be able to raise average daily rates (ADRs) further. In fact, ADRs might fall to $187-$196, and revenue per available room (RevPAR) might drop to an average of $141-$149.

Based on the agency’s figures for 2009 up to November, the ADR was $193.40 and the RevPAR was $146.40. The occupancy rate stood at 75.7 per cent.

‘Whilst it is extremely difficult to forecast hotel performance beyond 2010, it is likely that performance may continue to soften in 2011 and stage a recovery from 2012 onwards,’ says CBRE Hotels Asia-Pacific executive director Robert McIntosh. ‘It is highly unlikely that hotel performance in Singapore will return to the market highs of 2008 for a number of years.’

The large number of hotels coming onstream was a key factor determining CBRE Hotels’ outlook. It estimates that some 29 hotels with over 10,700 rooms could enter the market by end-2012, and more than half of the rooms could be ready this year.

Just on Tuesday, Resorts World at Sentosa said that four of its hotels would open later this month, providing 1,350 rooms.

Including projects that have been announced but are still under planning, there could be as many as 42 new hotels with over 15,000 rooms by 2015.

‘Many market participants have serious concerns as to whether the anticipated demand will be sufficient to absorb the additional supply,’ says CBRE Hotels senior consultant Alison Poore.

But she adds that the opening of the integrated resorts and improving business and consumer sentiments will ‘help to soften the impact of such a dramatic increase in supply over time’.

CBRE Hotels also notes that most rooms scheduled for 2010 will be ready only towards the end of the year. This will give existing hotels time to attract new business and strengthen client relationships.

Cushman &Wakefield Singapore managing director Donald Han points out that a significant portion of the upcoming supply will comprise five-star hotels. As a result, room rates at three to four-star hotels could stay relatively resilient and display ‘potential upside’.

The bright spark for the hospitality industry would be the projected increase in tourist numbers. CBRE Hotels expects visitor arrivals to grow an annualised 5-10 per cent this year. This means that there could be some 10.1-10.7 million visitors.

‘Consumer confidence is certainly strengthening and corporate travellers are slowly but surely re-entering the market,’ says Ms Poore.

Source: Business Times, 7 Jan 2010