CORFAC News

26 Jul2018

Outcomes and Market Updates from the 2018 CORFAC International Summer Affiliate Meeting

Traditional real estate markets are growing, driven by the expansion of global companies and by the appetite of investors. That was just one of the conclusions that came out of the CORFAC International Summer Affiliate Meeting held in Bucharest, Romania, June 21-25. CORFAC members from 10 countries attended the meeting, which was hosted by ESOP Consulting, CORFAC International’s Romanian affiliate. 

The global expansion of large high-tech companies, such as Google, Amazon, Facebook, Apple, Microsoft, Intel, Oracle, etc. represent a main driver for development of major world markets. Property purchases or rental of office and industrial spaces by these companies were reported this year by all CORFAC members in attendance, representing the countries of the United States, Mexico, Israel, Italy, Germany, Ireland, Great Britain, France, Russia and Romania.

“Of the top five major tenants in both the office and the industrial segment, we see almost the same players in the main international markets. It is incredible the speed of expansion of these players across the globe,” said Alistair Subba Row, Senior Partner of Farebrother/CORFAC International, the CORFAC affiliate in Great Britain. “Another major trend is the serviced offices, which revolutionized the way properties are used. In Great Britain, more than 5,000 units of serviced offices are already operating in the country, WeWork being the undisputed leader in London with more than 300,000 sqm managed. During the start-up period of these serviced offices the main clients were start-ups that rented between 5 and 50 work stations. They are now entering a new stage where giants such as PWC, Deloitte, IBM, Yahoo, etc. rent between 200-500 workstations in London, taking everything to another level, added Subba Row.  

Market Updates
Members attending the CORFAC Summer Affiliate Meeting discussed in detail the evolution of the international real estate markets, opportunities in a post-Brexit business world and easing the collaboration between regional and international markets. 

CORFAC members can listen to all of the market updates here.

Great Britian
In Great Britain, Brexit's negotiations have dominated the political scene. “During recent years, we have had a change of prime minister, a change of the mayor of London and a period of pressure on the residential segment, with a particularly limited offer. The market is being repositioned and at the forefront of this repositioning is now Great Britain, not just London,” said Subba Row.

The investment market is currently dominated by investors from Asia and the Middle East. The yields for prime trading properties range between 3-4 percent in London. In the rental market, the demand remains high, although a slight moderation of the current pace is expected in the coming years. The generous offer of new spaces under delivery has started to put pressure on both the rent level and the renovation or sale of old properties, which can no longer perform properly at the current level of quality. 

Germany
In Germany, "The investment market is very powerful, exceeding 12.1 billion euros in the first quarter of 2018. It is dominated by significant liquidity available for investment, in a market with high demand and low offer. Therefore, investors are motivated to look for niches and secondary locations,” said Hans-Ulrich Berendes, general director of Berendes & Partner/CORFAC International, CORFAC’s affiliate based in Hamburg, Germany. 

More than 50 percent of investments represent foreign capital. The yields are between 3-3.5 percent in the segment of class A offices, around 4 percent in the retail segment, 5-6 percent in logistics and 4 percent in the hotel market. However, "eyes are on the European Central Bank. If interest rates rise again, the yields of real estate investments will also increase slightly,” said Berendes. 

France
The real estate market in France is also strong with increasing investments. The business community is looking with interest to President Macron's efforts and waiting for a repositioning of France on a more competitive long-term path. “The French market is expanding and has returned to the levels of rent and volumes of investments it experienced pre-2007,” said Bill Beauclerk, MRICS, of BG Carre’/CORFAC International, CORFAC International’s representative in France. “Brexit did not have a significant impact on the office market in Paris.” 

Future increases in the interest rate are expected to lead to a slight increase of yields. The French economy is rapidly improving, and this phenomenon is expected to continue until at least the next elections in May 2022. 

Ireland
Ireland recorded the highest economic growth in the European space in 2017 (7.3 percent), fueled by investors from Germany, Great Britain and the United States. 2017 was a record year for the office market, marked by an accelerated trading pace (approximately 350,000 sqm) and a low vacancy rate (7 percent). 

In 2018, it is expected to deliver 240,000 sqm of office space in Dublin, of which 40 percent are pre-rented. As the demand is expected to remain high, incentives for tenants (in the form of months of free rent or fit-out contributions) may be put under pressure. 

The office market is dominated by the major players in the technology, media and telecom industries -- companies such as Google, Facebook, Linkedin, Amazon, Salesforce, etc. -- who appreciate Ireland’s stable legal framework, low tax rate (12.5 percent) and the level of education of the labor force (who consist of native English speakers). 

Israel
The Israeli market continues to attract massive foreign investment interest primarily due to its high-tech and bio-tech companies. After Waze, another record trade (15 billion dollars) was completed last year, the sale of Mobileye to Intel, which is headquartered in the United States. However, foreign investors looking to buy residential, office, industrial or commercial shopping investment properties are having a difficult time due to low inventory. If an investor is able to find a suitable property, they can expect yields of 6-8 percent.

Italy
In Italy there are currently a number of steps aimed at better regulation of the real estate sector, as is the case of tourism or agriculture. Transactions are concentrated in the cities of Milan, Bologna and Rome and usually involves new buildings. There is a significant stock of old properties available for sale at significantly discounted prices because they require large investments to bring them up to commercial standards. Many investors come from Asia; local investors are few in number. Italy is seeing growth in both the industrial and logistics segments due to its central location for the many transport routes to and from China.

Russia
In Russia, the largest real estate markets are Moscow and Saint Petersburg. The market is stable, and the main players that are moving and expanding are almost exclusively the existing companies in the market. Only occasionally do new companies enter the market. There is an increased appetite of domestic investors to invest in the European markets. 

United States
In the United States, the real estate market is at its peak and it is expected to continue at this pace. In many regions due to increased investment. “The products available on the market have become limited. 2018 brought a higher number of sale transactions and we believe that this trend will continue in 2019,” said Andrew Jaffe, 2018 President of CORFAC International and Vice President of Commercial Properties Inc./CORFAC International. “In some markets, such as Phoenix, AZ, the level of rents increased by as much as 25 percent during the last 2 years, and the sale price of residential products has also appreciated.”

Mexico
Mexico, the second largest economy in Latin America after Brazil, saw an increase in foreign investments by 19 percent in the first quarter of 2018. “Mexico's production market is one of the most competitive internationally, with the automotive industry being the most powerful segment of the economy,” said Miguel Cavazos, Managing Partner of Citius Capital/ CORFAC International.

Despite the delay in concluding the renegotiations of the NAFTA agreement and the forthcoming presidential elections, the real estate market is in continuous development, both in the office and industrial segments.

Romania
Romania has a real estate market with many opportunities, both in the office segment (with a stock of about 3 million sqm) and the industrial segment (about 1.8 million sqm at the end of 2017). “The real estate market in Bucharest is experiencing a growing period on the investment segment, where yields are 7.25 percent for prime offices and 8.5 percent for industrial,” said Alexandru Petrescu, Managing Partner of ESOP/CORFAC International.

Challenges
All of these changes are happening in a world increasingly marked by an international agenda -- not by the local one. The global influence of politics on the evolution of the real estate market, including political statements and decisions, such as Brexit, are having a direct impact on taxes and exports and implicitly on future demands. 

“We were delighted to host this event in Bucharest when all major segments -- offices, industrial, and residential -- are expanding, and the market provides many opportunities for investments and collaboration with our colleagues from CORFAC,” said Petrescu. 

 

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CORFAC International is comprised of privately held entrepreneurial firms with expertise in office, industrial and retail brokerage, tenant and landlord representation, investment sales, multifamily, self-storage, acquisitions and dispositions, property management and corporate services. Founded in 1989, CORFAC has 46 firms in the U.S., six in Canada and 27 in international markets, including Australia, Colombia, France, Germany, Ireland, Israel, Italy, Mexico, Romania, Russia, South Africa, South Korea, Switzerland and the United Kingdom. CORFAC offices completed more than 10,000 lease and sales transactions totaling 500 million square feet of space valued in excess of $8.0 billion in 2017.