Thursday, 29 January 2009

the luck of the irish

Am sure one day I’ll have something positive to say. In the meantime …… was reading a really dull report on European commercial property investment today from some US investment bank that reminded me of a really dull property investment conference I went to a coupla years back.

People managing billions of pounds of property investments where there, gosh they were impressive. One of the speakers from a major property consultancy touched upon the then novel development of Irish property investors investing in Britain. Now to get a sense of how important this new factor became I think in either 2006 or 2007 around half the shopping centres - by value - bought in Britain were bought by Irish investors and that’s without the kind of tax advantage the Spanish government handed to Spanish investors who bought overseas assets (the EU remains remarkably silent about that competitive advantage for some reason).

For the property analyst speaking at the conference, the professional paid to advise on market conditions and property transactions, this sudden interest reflected an Irish desire for “trophy assets”. The Irish, to her, were after a bit of British quality, some prime retail outlets sat on the green and dark blue bits of the monopoly board.

Bollocks. So hard-nosed investors who made themselves fortunes in Ireland turned so weak at the knees at a bit of British status and cache they chucked standard investment criteria out the window? The reality was more straightforward, Ireland led the property bubble and the kind of yields then on offer in Britain stacked up when compared with Dublin; these business transactions were about business not status and by buying into retail in the first instance they were simply following much the same strategy as everyone else did during the commercial property bubble.

So rather than analysis this “expert” trotted out jingoistic city-boy crap to fill the gaps left by the admittedly poorer data on the Irish property market, in the process reassuring a British audience that Britannia did indeed still rule the waves.

Which brings us back to the investment report I was reading today. Rather than gossip this simply lobbed graphs at the reader. Except they weren’t very good ones, they were simply what the Investment Property Databank sends out each month to whoever is on their cheapest subscription. This is a problem because they don't take geography into account, which matters because commercial property in Britain is essentially 2 markets. Now I know property consultants will disagree with this, but then they have to otherwise how could they justify their fees? So yeah, Britain has 2 markets. One is London offices the other is offices, retail, warehouses, factories and what not everywhere else.

London office capital and rental values are far more volatile and move in a different pattern to capital and rental values everywhere else. London offices are also absolutely stuffed at the moment and will be for years because of the restructuring i.e. hacking back, of the financial services sector that drives demand for them. Not that everywhere else is doing well or is going to, its just that by comparison they didn’t see quite the same increase in supply as London where developers knocked out as many buildings as possible to feed speculative oops sorry, tenant demand. Despite these rather obvious, glaring facts the investment bank report instead told me industrial property was my best bet at the moment i.e. it missed the dirty great financial disaster surrounding whoever wrote the report.

For me this combination of city boy chat and incompetent "technical" analysis highlights the arrogant stupidity that drove much of the credit crunch. To put this more formally Gossip times an unquestioning belief in financial models squared by financial instruments = an economic disaster for all of us.

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