US prime property hot over 5 yrs, Europe warm -DTZ

LONDON: Prime commercial property in the United States and Asia-Pacific is more attractively priced on a five-year horizon than that in Europe and Britain, a new property index showed on Wednesday.

DTZ's Fair Value Index gives the outlook for US prime property a so-called 'hot' rating of 89 on a scale of 0-100, against Europe's (including the UK) 'warm' 49, the UK's 'cold' 38, and Asia-Pacific's 'hot' 67.

The quarterly index ranked 180 property markets around the world. The higher the score, the more attractive the market for investment, DTZ said of the index, the first of its kind to focus on commercial property.

DTZ would assess fair value in property markets by comparing the annualised returns property investors could expect over a five-year period in their chosen market with the estimated risk-adjusted required return for that market.

The risk-adjusted required return was defined as five-year government bonds, with an allowance for the cost and risk associated with property investment, DTZ said.

"Having made this comparison, we can then assess whether the market is over or under-valued," DTZ said in a statement.

Markets rated as 'hot' are those where properties are valued at least 5 % below fair value over the five-year time frame, whereas 'cold' markets are those where prices are 5% or more over fair value. 'Warm' markets are those in between.

"The indices are based on a quantified assessment of whether pricing in 180 individual markets (defined by city and sector) is attractive to investors, and signal to investors which regions and sectors offer the best value," DTZ said.

Its global all-property index recorded a 'hot' 62, with 76 component markets achieving a 'hot' rating, 71 'warm' and 33 'cold'.

Of the 20 prime markets in the UK, London City offices, London West End retail and Manchester retail are rated as 'hot'. Most of the 'cold' UK markets are outside London.

Retail is the most attractive sector globally, rated at 73, with Los Angeles, Chicago, Singapore, London's West End and Hong Kong the five most attractive locations.

The industrial sector scored 58 on the index, with Singapore, Antwerp, Hong Kong, Barcelona and Hamburg being the top five locations.

Prime offices scored 56, with San Francisco, Hong Kong, Tokyo, Los Angeles and Chicago filling out the top five.