Credit crunch will continue into 2009 - DTZ

DTZ believes that in the best case scenario the first phase of the subprime crisis - a serious liquidity squeeze on the banking sector - may be over. But the property adviser cautions that what it describes as the credit crunch proper - a marked tightening in the pricing and availability of debt - will continue well into next year.

In the DTZ Lenders Survey, 75% of the respondents in the European market indicate they expect further tightening of lending terms, while 45% expect a reduction in typical loan-to-value ratios. The majority of respondents expect no significant recovery in the European Commercial Mortgage-Backed Securities (CMBS) market until 2009 - at the earliest.

The predictions are part of DTZ's Money into Property report, a combination of primary data and the results of DTZ's Lenders and Investor Intentions surveys to analysis the capital markets in 38 countries across Europe, Asia Pacific and the Americas.

In Money into Property, DTZ estimates the value of the global real estate capital market reached $12tln (EUR 7.7tln). While global investment transactions grew to $730bn last year, DTZ says the 'sea change in the investment environment' caused by the credit crunch will likely lead to a 30% drop in this year's volumes to $500bn. DTZ says global direct real estate transactions were down some 50% in the first quarter of 2008, compared to the same time in 2007.

The UK - where the price correction has been sharpest - faired somewhat better than the average and stabilised at £7bn (EUR 8.8bn) in the first quarter of 2008. But the total volume was still 42% down on the first quarter of 2007. Echoing the findings of other commentators, DTZ said the rapid correction in market pricing in the UK has pushed yields up by 123 basis points since their low-point in April 2007. In addition, foreign investors, mainly German funds, sovereign wealth funds and private equity firms from the Middle East and Asia Pacific, are showing renewed interest in the UK market. But DTZ cautioned that the 'disconnect' between buyer-seller price expectations was enduring, leaving many deals on hold. This suggests, DTZ says, that the yield correction has further to go in the UK and Europe.

The Investors Intentions Survey indicates that real estate is still in vogue, with 62% of respondents expecting to increase the funds allocated to the sector in 2008. DTZ says European and Asia Pacific investors are more positive than their counterparts in the US. The main target of any increased allocation will be the Asia-Pacific region, according to the survey. Some 56% of all respondents plan to increase exposure to Asia-Pacific real estate, with China benefiting most. Just 44% of the respondents are looking to increase their exposure to property in the UK in 2008, compared to 80% in 2007.