DTZ : Real estate market outcome in 2009 and company results

Valuation
Whilst the real estate markets remain heavily depressed, we are seeing some encouraging uplift in activity, particularly in the need for international standard valuation and appraisals. DTZ remain market leaders in this sector, and whilst over all work load is down from the levels of 2008, encouragingly, requirements for hotel based valuation and appraisal work has shown very considerable increase. This has enabled DTZ to further consolidate its position in this sector with the recruitment of additional specialists in Hotel valuation. Leveraging our strong valuation team in Ukraine, DTZ Ukraine have also undertaken during 2009 a number of major valuation assignments in Kazakhstan.

Within 2009 DTZ completed valuation for a broad range of companies including; Redstone, Scorpio, Esta Holding, London and Regional, Argo Real Estate Opportunities Fund, AISI Realty, KIG, Bank of Cyprus and Sberbank of Russia.

Investment
We are witnessing moderate interest from international & local investors to acquire cash generating assets and close to completion developments in Kyiv, and to a lesser degree in the largest regional cities of Ukraine. Refinancing is becoming available from a small number of commercial banks on the best quality collaterals. Majority of commercial loans were restructured and accordingly the market for distressed sales in 2009 was rather thin. Generally perceived net initial yields were varying from 15-20% which reflected relatively low capital values due to the suppressed levels of market rent. For these reasons property vendors have declined to agree to sell at such levels. At the same time investors were mainly interested in stand alone existing assets of 5,000 – 15,000 sq m. In 2009, investors were not ready to commit to a single deal more than US 5-20 ml which is significantly lower than in 2008.

Some investors have been seeking to approach banks directly to purchase stressed assets but the imperfect Ukrainian legal framework of repossession did not allow those deals to realize.

Some owners were trying to sell and/or to find equity partners to sustain their businesses and some negotiations took place with mainly Local companies as opposed to foreign investors who were waiting for result of Presidential elections to see if political risk could be minimized.

During 2009 majority of property viewings were done with the purpose of researching the market and identifying availabilities for future negotiations. The deals completed were mainly for owner occupation due to big gap between asking and offer price, sometimes the offered prices being even much lower than outstanding loans on these properties.

Optimistically, in 2010 DTZ expects moderate volume of investment deals starting from 2nd quarter of 2010 due to narrowing gap between asking and offer price, excluding projects, where banks would agree for debt restructuring.