3 Oct, 2012

Knight Frank Releases Highlights of Global Property Trends

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London, UK (PRWEB UK) 2 October 2012 – Knight Frank LLP, a leading independent property advisor, today announced its financial results for the year ended 31 March 2012 as well as a roundup of global property trends. Highlights:

Global Outlook

The prime residential London market has seen very strong performance over the past year, with prices rising 11% in the past 12 months to a new high. Prices are now nearly 50% higher than they were in March 2009. Since the 2012 Budget and the changes to stamp duty rates for £2m+ properties, sales volumes in London above this threshold have declined by around 20% year-on-year.

However, sales volumes below this level have increased through the summer.

In the prime country house market price growth has been much more subdued than that seen in London, reflecting the weaker regional economic picture. That said, sales volumes below £2m have been very strong through 2012, around 10% higher than the levels seen in 2011. The new stamp duty rates have had a less pronounced impact on sales of £2m+ properties, which are down only marginally since March on a year-on-year basis.

The development market in London has seen a robust year, again reflecting the wider strength of the London sales market, with ongoing demand from Asia for central London new build properties.

The rental market in London has seen a slowdown in rental growth, although with a rise of 20% in 2010 and 2011 this is hardly surprising. Landlords have seen increased completion from greater stock volumes in recent months, but London’s economy continues to outperform the weaker UK setting and letting volumes have remained strong, with some very positive numbers in terms of new lets achieved.

The UK commercial investment market remains highly polarised on grounds of geography and quality. There is a broad-based market for commercial property in London, but regional demand remains patchy and biased towards best quality. While debt availability is low, there is considerable equity investment in the market, which is re-enforcing the bias towards London and prime assets.

Weaker sterling continues to draw in foreign buyers – nearly 70% of central London commercial property sold in the last 12 months was to foreign buyers.

In occupier markets, retail property faces a particularly challenging environment, as the UK economy rebalances away from consumerism and towards exporting. However, industrial property is benefiting from these changes with improved demand for warehouses from the automotive sector, as major car groups increase production at their UK plants. Office leasing demand varies on a geographical basis, with London as the best performing region, although vacancy rates in most big cities are low compared to the early 1990s recession.

Asia-Pacific

Although the Asia-Pacific region has continued to be the main growth engine of the world economy, there has been a slowdown across most of the major Asian economies this year.

The on-going crisis in the Eurozone and the sluggish recovery in the US have hit exports and generally weakened market sentiment.

In terms of residential markets, price performance varied in 2012, as continued government intervention across many markets in Asia proved effective in cooling off booming markets. China, the largest housing market globally, has seen prices stabilise, with the central government resolute in maintaining measures to mitigate the risk of an asset bubble. Asian investors with excess savings have continued to be important buyers in “safe haven” residential markets in the UK, the US, Australia and Canada.

With the region’s economic performance tightly linked with global trade flows, the outcome of the ongoing problems in Europe will undoubtedly have an effect on domestic economies and their respective property markets. With moves towards a resolution in the Eurozone, we expect the Asia-Pacific region’s economies and property markets to enjoy the prolonged benefits as the balance of world economic power tips towards Asia.

Commercial property markets have continued to grow in developing Asia, reflecting the growth and structural changes in each economy. Occupier demand from domestic and pan-Asian businesses has continued to be strong, although multinationals have reacted more cautiously to the uncertainty in the world economy by holding back expansion decisions. Retail property markets have generally performed well on the back of the growth in retail expenditure as emerging middle classes orientate themselves towards modern retail formats.

Investment volumes have held up across the region, but continue to be dominated by Asian and domestic investors. Australia’s transparency, liquidity and connectivity into Asia has notably attracted a large number of offshore investors into the market.

Middle East

The first signs of a recovery within Dubai’s prime residential market emerged in the first quarter of 2012 when sales activity strengthened on the back of renewed foreign interest. Prime prices rose on average by 2.3% in the year to June 2012 although there remain two distinct markets with villas outperforming apartments by some margin. The low to mid-market remains oversupplied and there is a lack of quality stock but tighter supply in the prime market is supporting prices.

We expect prices in the best locations such as Emirate Hills, Downtown Dubai and Palm Jumeirah to see continued growth in 2012 and 2013.

The prime residential sales market in Bahrain stalled back in 2009 as a direct result of the global economic crisis and local issues and has struggled to gain any real momentum since, with continued negative growth recorded over this period. There have only been a limited number of transactions over the last 12-months in what is a small freehold property market, with year-on-year capital values typically down by 5% in prime master-planned community locations.

Forecasts for 2013 are for continued stagnation unless there is a considerable injection of growth into the wider local economy which could stimulate renewed interest in real estate by domestic as well as GCC buyers.

In Doha, property values of prime residential property have fallen by 30-40% since the peak of the market in 2008/09, and, similar to a number of other GCC markets, this property sector has witnessed a prolonged period of stagnation since the boom times. Following a period of rapid development in the mid 2000’s, the expectation of attracting large numbers of international property investors has not materialised as yet.

Extensive National Development Plans are underway in preparation for the Qatar 2022 World Cup Tournament which should enhance the appeal of this fast developing market to a wider global audience.

The commercial property market continues to vary widely dependant on the geography. Whilst cities such as Dubai are starting to see stabilisation, others such as Manama and Abu Dhabi are under continued pressure.

Dubai’s strategic location, coupled with its best in class infrastructure and a stable and positive hospitality sector has contributed to its return to economic growth. After the financial crisis, the UAE experienced gradual increase in employment, a growing economy and increasing inward investment.

Consumer spending is increasing and has translated into increasing retail rents in the UAE. Negative real interest rates and improving corporate balance sheets have led to credit spread contraction – falling mortgage rates and stabilizing rental yields along with an influx of cash rich consumers is stimulating investment into the real estate sector. The market continues to mature and tier into different quality accommodation – in Dubai at the prime end, both residential and commercial sectors have seen an upwards trend over the last 6-9 months.

Commercial offices have seen falling vacancy rates in prime space – though the wider market supply continues to increase. This stability and growth in the prime sectors – across commercial offices, retail, logistics and residential is something that we forecast to continue over the coming quarters.

Continental Europe

The Euro-crisis has held residential volumes back, whilst prices have not risen for some time, there is a lot of interest from buyers who are waiting for opportunities to capture the best value. Across Europe, buyers both within the continent and those from other regions have been focussing on the most established markets – those with long term strength through their international appeal.

While the opportunity of finding value is driving many (especially those coming from currencies that have strengthened against the euro), the defining characteristic of buyers in the prime markets is the focus on security or stability of the asset; concerns about capital growth or rental yields are secondary.

As such areas including Paris, the Cote d’Azur and prime spots in Italy and Geneva are still in demand internationally, albeit at lower volumes. Despite the economic uncertainty and the recent tax changes in a number of countries, the appetite for second homes still exists, and the outlook for prime locations remains positive.

Conditions in overseas commercial property markets reflect the global economic down swing, particularly in the more embattled Euro area nations. Investors are wary of nations that may be considering exiting the Eurozone, and instead have deployed money in perceived safe havens. However, if recent ECB policy initiatives succeed, we would expect opportunist investors to target European property in the future.

Global occupier markets have continued to face challenging conditions in 2012. However, compared with the 2008-2009 downturn, employers have proved more reluctant to shed jobs and cut capacity, which is keeping supply under control in most major international cities. In most big cities we are seeing a growing demand for office space from technology and telecoms firms, which we expect to accelerate once the global economy moves into a new cycle.

Africa

In South Africa, the prime residential sales market has seen increased activity in the past few months but prices remain stable. There is increased interest from overseas buyers as well as buyers from the African continent. The interest rate in South Africa has not increased which is contributing to the revival of the property market and we expect 2013 to show a marked improvement.

In Kenya, Nairobi’s prime residential market continues to record double-digit annual price growth due principally to rising local wealth, increased foreign investment and tight supply. Prime prices rose by 21.8% in the 12 months to June 2012. The Central Bank interest rate, having risen from 5.75% to 18% over the course of 2011 has now been cut to 13.5% but despite the improved lending conditions this is likely to have only a minimal impact on the prime market given its limited exposure to mortgage finance.

On the Kenyan coast, sales activity in Watamu is steady but Lamu is expected to be quiet for a number of months. The international market shrank significantly post-2008 and we expect demand to remain muted until security risks reduce.

The upcoming general election has created some uncertainty for those looking to invest in Kenya and many are delaying purchasing until after March 2013 as a result. For commercial property, Africa remains one of the fastest-growing regions of the world, with the IMF forecasting GDP growth of 5.4% for Sub-Saharan Africa in 2012. Economic activity has been boosted by increased foreign direct investment, with China becoming a particularly important trading partner.

Although property markets remain underdeveloped across much of the continent, the entry of growing numbers of multinational companies into Africa has boosted demand for high quality office space and attracted international developers to cities such as Lagos and Nairobi.