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JLL chief cites lack of confidence in pricing as a key factor, but says demand for office space here is still good. By Arthur Sim

The global credit crunch is likely to see worldwide pr- operty investment sales fall about 50 per cent this year compared with 2007, says Jones Lang LaSalle (JLL) president and global CEO Colin Dyer.

Mr Dyer, who was in Singapore earlier this week, also told BT that the deals that are being transacted now have to be done in cash.

According to JLL, global direct real estate investment hit a record US$759 billion in 2007. But this had already fallen 42 per cent in H108 compared with the same period last year.

The lack of availability of debt has been a big factor. But Mr Dyer added: ‘More recently, the lack of confidence in pricing, because of the fewer transactions completed, has led to investors being unsure of clearing prices in the market.’

This may have hampered the picking up of perceived distressed assets by opportunistic investors, as price expectations between buyers and sellers vary. This stand-off will take some time to ‘play out’. And in the meantime, the number of properties available keeps increasing.

As Mr Dyer also points out, it is not the assets that are distressed but the owners, and it is this that will have a bearing on how committed they are to sell.

So far, prices have fallen 15 to 25 per cent in general, he added. Deals are still being done, but much smaller ones.

‘It’s the smaller transactions that tend to happen now, while bigger transactions don’t,’ said Mr Dyer. ‘The reason is that it’s possible for private individuals or holders of equity to do these smaller transactions, whereas larger transactions have always been funded with debt.’

The buyers who tend to have cash now are sovereign wealth funds, private equity funds, open-ended German funds, oil-rich investors and a few very high net-worth individuals.

Mr Dyer said one such individual recently acquired a commercial property in Australia for A$50 million (S$59.6 million) - and paid in cash.

The size of the deals now is indicative of the times, with transactions below US$100 million.

JLL notes that in Singapore, investment sales did rise 20 per cent in H108 compared to H107. Grade A office property yields were also between 5.8-6.3 per cent. However, investment sales here are expected to slow.

Mr Dyer believes, however, that demand for office space here is still ‘good and sustained’.

JLL expects international and local banks here to review and streamline headcounts and expansion plans. But it notes that growth in the regional finance industry has led to new players like Taiwan’s Polaris Group and US-based Cantor Fitzgerald setting up offices in Singapore in Q2 this year.

Source : Business Times - 27 Sept 2008