Global Property Market Review - July 2007

South African Property Market Industrial property has been the top performing class for 2 years and is set to continue despite the slow down in manufacturing and difficult times ahead for distribution tenants. Rising building costs coupled with power restrictions has put a dampener on new projects and existing space is in limited supply with vacancy levels dropping rapidly. Fundamentals remain strong for Industrial Property and we anticipate some significant double-digit rental growth, particularly for modern well positioned industrial properties.

The retail sector is set for a torrid ride with consumer spending plummeting and oversupply in certain areas. Whilst major anchors are geared for tough times, they will be negotiating lower rentals and some smaller non-national tenants will be closing shop, particularly luxury and non-essential product and service providers.

The leisure property industry is attracting considerable offshore interest with notable foreign investment over the past few years and still escalating. Recently some premier game reserves have been acquired but the overwhelming investment is in hotels and resorts across the country with some R 25bn in new projects announced in the last 2 weeks.

We anticipate the slow down to persist for 18 months to 2 years followed by a strong resurgence. In terms of property with its long term view, this is but a blip on the radar screen and provides a lot more comfort than other asset class investments.

UK and European Property Market The UK market has become fairly priced and an exception in mature markets moving from most overpriced to the fairest priced in rapid time. The market is firmly internationalised with cross-border investments making up over a third on property transactions in the last quarter. Global equity investors are poised for acquisitions but these will be well researched and strategic. There is a lot of hurt in store for euphoric entry into the market, particularly with stressed sale opportunities.

The Central London office market is still fraught with danger as oversupply, tighter credit and lower rentals send profits tumbling for funds that are weighted in the office market and further declines are certain. West end is a stark contradiction with rentals holding strong as supply remains relatively static.

Generally there are some good yields coming forward but these come with the associated risk tag. Dunbar Property Group has to date focused on UK properties under long leases (20 years plus) with strong covenants and the resultant tighter yields, however, for investors that are more risk centric, there are opportunities closing in on 9 and 86 yields. No stressed selling has been seen yet in this sector, however, if the economy pursues its declining trend, this scenario may change.

Some analysts are predicting a fast turnaround for the US economy basing their assumptions on Federal Reserve intervention, the weaker dollar boosting exports and low institutional debt. Others argue that there are insufficient property investors that concur with this view. Be that as it may, the market has some excellent opportunities for astute property investors with cash in the bank and effective asset management teams.

Australian Property Market There are no signs of relief for the spiralling Australian property market and conditions are set to worsen next year. The office market is expected to experience some heavy capital losses whilst retail property returns are set to go negative. Industrial property will receive the softest blow but overall, the property market is ominous with some substantial stressed selling in the pipeline.

Next year will be a good time for cash-in-hand investors to negotiate very fruitful deals.

Garth Wilson is CEO of Dunbar Property Group, a Global Specialist in Commercial and Industrial Property.