Cherries Waiting To Be Picked

Sydney Morning Herald

Saturday May 10, 2008

Carolyn Cummins

THE global credit crunch has hit the property market hard with many companies finding it difficult to raise cash for new projects.

Colliers International's report on the commercial market says there has been limited investment sales activity in the first quarter of this year, with only one big transaction occurring.

But Felice Spark, Colliers's state director for commercial research, said that while the uncertain financial climate had played its role, the volume of metropolitan office investment sales activity in the first quarter of last year had also been moderate, with only a handful of sales recorded.

"The first-quarter result has not been promising, but one swallow does not a summer make, as we discovered last year," Ms Spark said. "The remainder of 2008 will be nothing if not very interesting on the investment front."

She said yields had almost certainly peaked in late 2007 and would soften this year by as much as 25 to 100 basis points as investors delayed decisions.

Ian Breedon, lead partner of Deloittes Real Estate Group in Australia, said commercial property rental fundamentals appeared to remain encouraging, but returns would be lower for investment companies.

"In Australia, there may be opportunities to build across the various classes of commercial property," Mr Breedon said.

"The fundamentals of the Australian market continue to be strong, which is often ignored in the context of the subprime crisis," he said.

"But while the debate rages as to whether commercial property will be fine until 2009, or heading for immediate challenges in 2008, the facts and related issues tell a compelling story while the commercial property industry weathers the current credit crunch."

Mr Breedon said a number of cashed-up Australian investors could pick up some great opportunities locally and overseas, particularly in the US, Asia and Europe. However, the focus on the fundamentals was critical, he said. "Returns will be lower compared with recent years. But, when compared with other investment categories, commercial property continues to be an attractive investment due to its stability and opportunity for diversification."

Deloitte's head of securitisation, Graham Mott, agreed that asset quality and yields were still solid. "The challenge for investors in the second half of 2008 won't be identifying opportunities as much as securing debt in an environment where lenders are more cautious," Mr Mott said.

© 2008 Sydney Morning Herald

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