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Wednesday, January 02, 2008 3:34 AM

Global Property Bubbles to Implode in 2008

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The Telegraph is reporting UK Landlords face office rent crisis.

One of the UK's leading commercial property agents has warned that office rents may tumble next year, dealing a second devastating blow to landlords who have already seen the value of their portfolios plummet in recent months.

DTZ is predicting a 15pc-20pc fall in office demand in 2008 as banks and other financial institutions reduce their overheads, which will almost inevitably lead to a softening of rents and the increase in incentives such as rent-free periods.

DTZ's report added that the current financial crisis is symptomatic of a much wider problem than the US sub-prime market.

A spokesman said: "Sub-prime is a red herring. It was simply the most stretched segment of an over-stretched debt market. As such, it has to be seen as a catalyst rather than the cause of the recent turmoil."
My Comment: DTZ has this correct. Yet we still hear (at least in the US) how all of this is related to subprime. Alt-A and Pay Option ARMs are going to be at least as big if not a bigger problem than subprime.
The concern over rental growth in the commercial property market comes against a backdrop of a falling number of deals in the sale and purchase of commercial property.

Research from property agent Jones Lang LaSalle (JLL) reveals that the volume of transactions across the UK commercial property market dropped 25pc in 2007 to £48bn as investors fled the sector. Falling prices and reduced availability of debt restricted the flow of deals, especially larger ones, across the second half of the year.
My Comment: Commercial Real Estate Transactions Plunge in the US as well. A plunge in transaction preceded the bursting of the housing bubble in the US. Expect the same scenario to play out in the Commercial Real Estate bubble.
JLL director of capital markets Andrew Hynard said: " I think the first quarter of 2008 will be pretty slow, and we will see the pick-up in quarter two. However, the fall in capital values is likely to keep the overall value of transactions lower in 2008 than 2007."
My Comment: JLL is an amazing optimist. The US, UK, and EU all likely headed for what Shiller calls a Japanese Style Recession.

A Real Estate Bubble in Spain

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Spanish property dreams seem to be reaching for the sky. The new skyline of the Spanish capital Madrid features 250 meter high office buildings - a symbol of the country's economic boom.

But as the city grows higher it is also becoming too expensive for many residents. Rocio Ramos and her partner bought themselves an apartment outside the city and now they are struggling to keep up with rising interest rates. At the same time, prices are stagnating after the years of building boom. On the coast many of the newly built appartments are empty. Ute Brucker took a look at developments in Madrid and Valencia.
The above property cost 200,000 Euros ($292,000+-) for 65 square meters (about 700 square feet) in a building constructed in the 1970's. That is a bubble folks.

Property Bubbles Are Everywhere You Look

Florida has been ground zero of bubble popping but California, Arizona, and Nevada are catching up. Internationally, there are enormous bubble in Spain, the UK, Canada (especially Vancouver and Toronto), and China.

Credit expansion in the UK and EU was just as rampant as the US. Global property bubbles were the result. Here is an interesting chart from HousePriceCrash.Co.UK

The dotted line is an alternate trendline that I drew. The ramifications should be obvious.

Global property bubbles are poised to implode in 2008.

Mike "Mish" Shedlock
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