The value of the real estate capital market reached $12 trillion in 2007 – up 18 per cent on the previous year, according to DTZ’s flagship Money Into Property report.
Global investment transactions also grew to $730 billion in 2007, but, following the change in the global investment environment over the course of last year, DTZ expects a fall of 30 per cent in 2008 to about $500 billion.
DTZ also said that global direct real estate transactions were down some 50 per cent in the first quarter of 2008, compared to the same time in 2007. In the UK, transactions appeared to stabilise in the first quarter, standing at £7 billion, 42 per cent down on Q1 2007.
The rapid correction in market pricing has seen foreign-based investors, notably German funds, sovereign wealth funds and private equity from the Middle East and Asia Pacific, now showing interest in the UK market. DTZ believes that, at best, the worst of the first phase of the ‘sub-prime’ crisis may be over, but that the credit crunch proper – a marked tightening in the pricing and availability of debt – has much further to go, and will continue well into 2009.
This is backed up by the results of the DTZ Lenders Survey which reveals that 75 per cent of respondents in the European market anticipate tightening lending terms and conditions, and 45 per cent expect a reduction in typical loan-to-value ratios.
Meanwhile, the Investor Intentions Survey reveals that 62 per cent of respondents expect to increase funds allocated to real estate in 2008, with European and Asia Pacific investors significantly more positive than those based in the US.
In the UK commercial property capital values have fallen by around 18 per cent since summer 2007.
DTZ anticipates a further fall of at least another five per cent in the second half of 2008 as rental growth in occupier markets turns more comprehensively negative, but value changes will be very asset-specific.
However, deteriorating occupier conditions have been largely priced into property yields, which are forecast to stabilise by 2009, with the exception of some retail sub-sectors and secondary assets.
DTZ warns that there is unlikely to be a substantial revival in UK investment transactions before 2009 and investment returns will remain weak until 2010.
Geoff Thomas, DTZ’s Birmingham-based regional chairman, said: “Birmingham’s prime office market is far more robust than the City of London or most other centres due to fact that it is a much smaller market and the balance of supply and demand is better matched.
“The bulk of Birmingham’s office market relies on occupier churn as companies grow, leases come to an end and they upgrade their accommodation for staff.
“A good example of this is Wragge & Co’s move in 2011 to 250,000 sq ft at Two Snowhill, the largest ever pre-let in the city centre, and which is great news for Birmingham.”
Robert Peto, DTZ’s UK & Ireland chairman, said: “With prospects for capital growth limited, investor focus has returned to occupier fundamentals.”