Commercial Real-Estate Prices Stumble in Global Capitals
14 August 2019 - 6:24AM
Dow Jones News
By Esther Fung
Commercial-property prices in major cities around the world
tumbled in the second quarter, amid signs of slower global growth
and heightened trade tension between China and the U.S.
Average property prices fell in the second quarter from the
first quarter in Hong Kong and Seoul to London and Washington,
D.C., according to data from Real Capital Analytics.
Paris commercial real-estate prices declined the most among the
markets that Real Capital Analytics tracks in Europe, tumbling 2.6%
for the quarter. Prices in Central Chicago fell 2.1%, making it the
worst performer among U.S. cities.
In Australia, where the economic growth has slowed sharply since
mid-2018, property prices were down more than 2% in Melbourne and
Central Sydney.
"Investors are less hungry to take on risks in major markets,"
said Jim Costello, senior vice president at Real Capital
Analytics.
The quarter marked the first time in years that property prices
in so many of the world's major cities were weaker than the
previous quarter. Prices for hotels, office buildings, malls and
other commercial property in these metro areas enjoyed a big run-up
in recent years, but an increasingly murky economic outlook is
weighing on sentiment.
Some economists believe that the recent phenomenon of
shorter-term U.S. government-bond yields climbing above longer-term
ones could be signaling a recession. The Federal Reserve last month
cut the federal-funds rate by a quarter-percentage point, citing
slower growth overseas as one reason. The U.S. trade dispute with
China -- despite the administration's decision on Tuesday to delay
the next round of tariffs until December -- could set the stage for
additional rate cuts.
Some real-estate executives suggest that the low interest-rate
backdrop had kept prices edging higher, and that investors are only
now starting to focus on deteriorating economic fundamentals.
"I think ample liquidity is potentially covering a multitude of
sins," said Brian Ward, chief executive officer of Trimont Real
Estate Advisors.
In Singapore, an economy heavily reliant on trade,
second-quarter gross domestic product contracted 3.3% from the
first quarter, reversing the 3.8% growth recorded in the first
quarter. Singapore's government also lowered the country's GDP
forecast this year, to a range of 0 to 1% from a previous estimate
of 1.5% to 2.5%. Singapore property prices fell 0.6% in the
quarter.
High construction costs have limited new supply and helped
stabilize U.S. commercial-property prices. Industrial, apartment
and office values rose between 2% and 9% over the past 12 months,
according to real-estate research firm Green Street's Commercial
Property Price Index.
But some sectors still experienced price declines, such as
apartment and office market prices in Chicago and New York. U.S.
mall values also fell 7% over the past year, Green Street said.
Cedrik Lachance, director of Green Street's REIT research, said
that while the economic backdrop has become more difficult for
real-estate companies in the U.S., there has been slow but steady
growth. He expects property prices in the U.S. to be flat in the
next six to 12 months, with lower interest rates helping to offset
slowing growth and a dip in business confidence and investment.
"Obviously, rates have helped a lot in terms of sustaining
property prices," he said.
Write to Esther Fung at esther.fung@wsj.com
(END) Dow Jones Newswires
August 13, 2019 16:09 ET (20:09 GMT)
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