As prices fall in troubled Athens, yields rise

Prime commercial buildings in Greek capital returning 8pc, and banks' sell-offs and business closures offer investors opportunity

PUBLISHED : Wednesday, 24 October, 2012, 12:00am
UPDATED : Wednesday, 24 October, 2012, 2:57am

Yields on prime commercial property in Athens climbed this year as pessimism over Greece's economy and the prospect of banks selling assets depressed real estate values, according to Colliers International.

Yields on the best office properties in the capital rose to 8 per cent this year from 6.9 per cent in 2009 and prime shopping-mall yields increased to 8.5 per cent from 6.3 per cent, said Ana Vukovic, the broker's managing director for Greece. Yields from income-producing real estate move in the opposite direction to property values.

"Prime yields are moving upwards in 2012 driven by the high cost of money and low availability of capital, combined with suppressed demand" and pressure on banks to sell properties to bolster their balance sheets, Vukovic said.

The country's economic crisis is prompting businesses, banks and other commercial real estate owners to close stores and branches, opening opportunities to investors. Greece has pledged to raise €50 billion (HK$504 billion) from state assets, about half of which is real estate, by 2020 to meet conditions tied to €240 billion in foreign aid pledged over the past two years.

Prime office vacancy rates in Athens doubled to 16 per cent this year and rents fell to about €21 per square metre a month from €32 per square metre in the peak, according to Colliers. Prime retail rents fell to €150 per square metre a month, from as much as €280 per square meter a month at the peak in 2006 and 2007.

By comparison, yields for commercial property in London's financial district were unchanged for the 12 months to June at 5.25 per cent, according to Jones Lang LaSalle.. In the West End, prime yields for sites valued below £10 million (HK$124 million) were stable at 4 per cent, the Chicago-based broker said in a report.

Greek GDP may drop 3.1 per cent next year and 0.3 per cent in 2014, according to a survey released on October 1. With the economy heading for its sixth year of recession, companies may continue to shed jobs even with unemployment at 25.1 per cent, the highest in the euro zone.

Greece is overhauling its banks after they incurred losses on domestic government bonds in the country's debt swap, the biggest restructuring in history.

Greece obtained a €130 billion bailout in March from the European Union and the International Monetary Fund that earmarked €50 billion for recapitalising lenders.

Colliers predicts prime commercial property yields will stabilise next year as Greece pays down debt, sovereign risk abates and investor appetite picks up as the government introduces fast-track legislation to make investing in state property easier.

Greece's state asset-sales fund last month chose a Lamda Development unit to lease the International Broadcasting Centre in Athens for 90 years. Lamda made an €81 million bid in a public tender in the first real estate privatisation in the country's plan to raise about €25 billion from the sale or lease of public property. Colliers provided an independent valuation of the property. "This first privatisation deal is expected to speed up privatisation projects and plans, sending a message for a business-friendly framework that can upgrade the role of Greece and its potential for economic recovery," Vukovic said.

The broadcast centre was built for the 2004 Olympic Games and includes the Golden Hall shopping mall with a total area of 132,200 square metres and an additional vacant area of 21,600 square metres.

The Hellenic Republic Asset Development Fund in December started a public tender process for a majority stake in Hellinikon, the company with the right to manage and develop the city's former international airport under a long-term lease that covers 6.2 million square metres of land.

Last month, the fund chose Qatari Diar Real Estate investment, London & Regional, Elbit Cochin Island and Lamda Development for the second round of bidding to buy a majority stake in Hellinikon.