Global Trends

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Cheer Up - we are in Dubai!

• Dubai saw sales volume more than double in 2008
• Middle East Q4’08 property sales down 62% over Q4’07

A Quickening Global Slowdown

With the typical spate of year-end deals, some would have expected the rate of decline in commercial property sales volume to slow in the final quarter of 2008. But the drop accelerated—in the developing world, activity plummeted as the year drew to a close. The impact of the increasingly sharp pullback from investment is truly global.

While the full-year figures for 2008 were dismal enough against 2007 sales volume—total investment plunged 59% yoy to $495.9b from $1.2t—the fourth quarter told an even grimmer story. Global sales for the final three months of 2008 were a full 80% below Q4’07 totals (all figures are preliminary— final numbers to be presented in February).

No matter how you slice it, whether by global region, property type or deal type, yoy deceleration of activity in Q4’08 was remarkable for its velocity.

Eastern Europe’s 50% decline was the least weak of any region in Q4, and its 7% yoy decline on $27.5b in sales was the second smallest for any region with more than $5b in sales. Still, this emerging-market region showed one of the greatest contrast—43 percentage points—between its full-year decline and its fourth-quarter drop-off, indicating just how rapidly interest in emerging markets is cooling.
The widest gap, 76 percentage points, was in emerging Latin America on $12.1b in sales.
Emerging India, with $6.1b in 2008 sales, had a 50-point disparity between its full-year and fourth-quarter declines. But developed markets also showed severe late-2008 stress: Japan’s volume, down 23% for the year, fell 80% in Q4’08 vs. Q4’07, a 57-point gap on $32.7b in sales.

The stark Q4 numbers also showed that some activity had virtually disappeared, most notably in entity-level sales, which were off 99% from Q4’07, andhotel sales, off 91% from Q4’07.

Hotels, with total 2008 sales of $30.9b and a 76% drop from 2007, were also the lowest volume and hardest hit property type.

Of the three global theaters, the Americas fell the hardest in full-year and fourth-quarter sales.
The global leader in 2007, the Americas, with 2008 sales of $151b, was barely ahead of Asia Pacific, with $135.6b, and well below EMEA, with nearly $210b. But while sales fell 48% in EMEA and 45% in AsiaPac, they plunged 73% in the Americas for the year after being dragged down 88% in Q4’08 vs. Q4’07.
Although the Mideast posted a positive yoy change in sales, it was on just $5b in volume. And as Q4’08 sales—down 62% over Q4’07—show, even this wealthy region has begun to crack.

Most Active Markets By Volume (Over $1b)

The low global volume induced surprisingly little turmoil in annual rankings of the most active markets, with seven of the Top 10 remaining on that list. Still, only 76 markets worldwide in 2008 had more than $1b USD in sales volume, down from 135 markets in 2007.

Sales for the Top 10 markets declined 62% in aggregate yoy. Two of the three new arrivals, Beijing and Hong Kong, which each moved up seven places to Nos. 4 and 8, were from Asia Pacific. Two other AsiaPac markets, Tokyo and Singapore, each moved up three spots to Nos. 3 and 6. EMEA’s Stockholm made the biggest move, vaulting an impressive 18 markets to No. 10. While New York Metro and London held firm to the top two spots despite volume declines of 68% and 52%, Paris slipped one spot, L.A. Metro fell two places to No. 5, and DC Metro barely clung to the list, dropping from No. 4 to No. 9.

Largest Percentage Gainers & Losers

Only one market—Dubai—saw sales volume more than double in 2008; only one more market— Saint Petersburg—saw a boost of more than 50%.
And only five other markets with volume of more than $1b USD, none of which is in the top tier of world capitals, had a net increase in volume for the year.
Eight of the biggest gainers were in emerging markets, including five in Asia. China topped its three biggest gainers with four top losers, however. The US, which had no big gainers, had three major losers, led by condo-saturated Las Vegas at No. 6, which had a downdraft of 87%. Three markets, topped by Hanover, Germany, had a volume decline of more than 90%; the remaining losses were clustered between 89% and 85%. Nos. 2-4 were Chinese cities, and Sydney, reflecting Australia's 2008 setback, was in fifth place.

Where the Trouble Lies

Distressed assets have already appeared in almost every significant commercial property market in the United States and worldwide.

The global report on troubled real estate assets will be featured in the February issue of Global Capital Trends.