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News release

Sydney

More clarity of the value of commercial property assets as we move into 2H09

Transaction activity down for 1H09 but no signs of a bargain basement sale for commercial assets and it appears the Mexican stand-off is coming to an end


SYDNEY, 16 JUNE 2009 – Sales activity in the first half of 2009 for commercial property assets has been down by about 40% nationally, but the expectation is that activity will increase in the second half of the year off the back off more clarity around values and a stand-off between buyers and sellers that appears to easing.
 
Sales activity data nationally for the first half of the year up until 11 June released by Jones Lang LaSalle shows that sales across commercial office, retail and industrial assets were down by 41% compared to the same period last year.  Office and industrial sales have been the most affected, down by 48% and 47% respectively.  Retail has been less impacted, down by 21%.
 
National Head of Capital Markets, John Talbot said the dealflow that has been occurring this year has reinforced that the most active buyers in the Australian commercial market are cashed up local investors in the price range of up to about $80m. 
 
“The other active buyers in the market are domestic super funds, domestic syndicators, Asian private investors and German closed and open-ended funds. 
 
“Three of the highest office sales this year were sold to German investors; the sale of the Australian Tax Office building in Perth for $95m to Deka, the sale of 14 William Street in Melbourne for $170m to Deka and the reported sale of ATO Canberra to Real.IS.

“The sales this year have also confirmed that these buyers are taking advantage of the good buying opportunities currently on offer, but we do expect that this window of opportunity will start to close over the next 6-12 months.
 
“That’s because we are seeing less pressure from sellers to sell prime assets as a result of recent
A-REIT capital raising strategies.
 
“There is increasing clarity in the market that prime values will end up dropping by 20-25% from peak to trough.  The predictions of 30-40% appear unlikely to happen as there has been less distressed selling in the first half of this year than anticipated. 
 
“The lower sales volumes this year also reflect that many of the larger REIT's have become less inclined to sell prime assets at significant discounts as a result of successful capital raising activities and the improved headroom they have secured on their lending covenants.
 
“This has taken the pressure off and there is evidence that banks are taking a more moderate stance.  Whilst many borrowers are in breach of lending covenants, most continue to meet loan repayments and have adequate interest cover so banks are less inclined to force transactions.
 
“The improving world economy and rebound in equity markets is also lessening the denominator effect of overweight property allocations and this is impacting on the need to sell assets.
 
“The property market is stabilising and the huge fire sale of assets that was predicted and the blood on the floor is unlikely to occur.
 
“Going forward, in the second half of the year sales volumes are expected to increase mainly as a result of more distressed selling in secondary markets.
 
“We believe banks are likely to take a tougher stance on loan rollovers in the secondary markets and vendors may be forced to sell.  We also expect there will also be an increase in loan delinquency at the riskier end of the market.
 
“We know that offshore investors are still viewing the Australian market favourably and we expect the next 6-12 months will be a critical time for them to gain a position in the market,” Mr Talbot said.