LITTLETON, Colorado, Sept 19 (Reuters) – The deepening debt crisis in China’s construction sector – a key engine of economic growth, investment and employment – may trigger an unexpected climate benefit in the form of reduced emissions from the cement industry.
Cement output and construction are closely correlated, and as China is by far the world’s largest construction market it is also the top cement producer, churning out roughly 2 billion tonnes a year, or over half the world’s total, data from the World Cement Association shows.
The heavy use of coal-fired kilns during manufacturing makes the production of cement a dirty business. China’s cement sector discharged 853 million tonnes of carbon dioxide in 2021, according to the Global Carbon Atlas, nearly six times more than the next largest cement producer, India.
The cement sector accounts for roughly 12% of China’s total carbon emissions, according to Fidelity International, and along with steel is one of the largest greenhouse gas emitters.
But with the property sector grinding to a halt due to spiralling debt worries among major developers, the output and use of cement are likely to contract over the next few months, with commensurate implications for emissions.
HOUSING SLUMP
The property markets account for roughly a quarter of China’s economy, and for years Beijing has used the sector’s substantial heft to influence the direction of the rest of the economy by spurring lending to would-be home buyers and fostering large scale construction projects.
But the big property developers racked up record debt loads in recent years that have forced borrowing levels to slow, stoked concerns among investors, and slowed spending across the economy.
China Evergrande Group, once the second largest developer, defaulted on its debt in late 2021, while top developer Country Garden has drained cash reserves to meet a series of debt payment deadlines in recent months.
Fears of contagion throughout the property industry has spurred households to rein in consumer spending, which has in turn led to deteriorating retail sales and further economic headwinds.
Beijing has stepped in with a slew of measures designed to right the ship, including easing borrowing rules for banks and lowering loan standards for potential home buyers.
But property prices in key markets remain under pressure, which has served to stifle interest among buyers and add to the pressure on investors and owners.
CEMENT CUTS
With construction activity across China slowing, and several major building sites stopped completely while tussles over debt payments among developers continue, cement output is likely to shrink to multi-year lows by the end of 2023.
During the March to August period, the latest data available, total cement output was 11.36 million short tons, down 2 percent from the same period in 2022 and the lowest for that period in at least 10 years, China National Bureau of Statistics data shows.
In addition to curtailing output in response to the bleak domestic demand outlook in the property sector, cement plants may be forced to curb output rates over the winter months as part of annual efforts to cap emissions from industrial zones during the peak season for coal heating.
Some cement producers will likely look to boost exports in an effort to offset lower domestic sales, and in July China’s total cement exports hit their highest since late 2019.
But Chinese firms will face stiff competition from lower-cost counterparts in Vietnam, which are by far the top overall cement exporters and already lifted overall cement shipments by close to 3% in the first half of 2023, data from the Vietnam National Cement Association (VNCA) shows.
Some Chinese firms may be prepared to sell exports at a loss for a spell while they await greater clarity over the domestic demand outlook.
But given the weak state of global construction activity amid high interest rates in most countries, as well as the high level of cement exports from other key producers such as India, Turkey, United Arab Emirates and Indonesia, high-cost Chinese firms may be forced to quickly contract output to match the subdued construction sector.
And if that’s the case, the sector’s emissions will come down too, yielding a rare climate benefit to the ongoing property market disruption.
The opinions expressed here are those of the author, a columnist for Reuters.
Reporting By Gavin Maguire; Editing by Miral Fahmy
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
[1/3]A model of the Ford F-150 Lightning electric pickup is parked in front of the Ford Motor Company World Headquarters in Dearborn, Michigan, U.S. April 26, 2022. REUTERS/Rebecca Cook/File Photo
Aug 10 (Reuters) – Ford Motor (F.N) expects to incorporate more and better software into the trucks and vans in its highly profitable Ford Pro commercial vehicle business and grow revenues by $4,000-$5,000 per vehicle by 2026, a top executive said on Thursday.
Navin Kumar, chief financial officer of Ford Pro, said the automaker would look to boost revenue with software- and data-driven fleet services, safety and security services, partial vehicle autonomy and insurance.
Kumar, speaking at a J.P. Morgan investor conference, did not give a percentage forecast for revenue or profit margin growth, but said Ford’s ability to deliver and profit from those services will be enhanced in the middle of this decade when the company introduces its next-generation electric commercial vehicles with a new digital “intelligence” platform.
That new platform will help Ford Pro meet some ambitious 2026 targets, he said, including doubling the percentage of connected vehicles to about 60% and tripling the percentage of vehicles with paid software to about 36%.
Ford Pro will continue to offer a full portfolio of combustion engine, hybrid electric and full electric vehicles, Kumar said.
Its second-generation EVs, including the successor to the F-150 Lightning pickup, will be more profitable, in terms of their ability to generation additional software and services revenue.
Kumar said the current F-150 Lightning was not “cost optimized,” but declined to say whether it was profitable.
He said Ford Pro expects to boost its commercial vehicle business in Europe with the arrival this fall of a new Transit Custom van and the introduction next year of electric versions of the Transit Courier and Transit Custom.
Reporting by Paul Lienert in Detroit; Editing by David Gregorio
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LONDON, July 6 (Reuters) – Iran’s Revolutionary Guards “forcibly seized” a commercial ship in international waters in the Gulf on Thursday and the vessel was possibly involved in smuggling, a U.S. Navy spokesperson said.
The U.S. Navy had monitored the situation and decided not to make any further response, U.S. 5th Fleet spokesperson Commander Tim Hawkins said.
British maritime security company Ambrey said it was aware of an attempted seizure by Iranian forces of a small Tanzanian flagged tanker, around 59 nautical miles northeast of the Saudi Arabian port city of Dammam.
“Iran regularly intercepts smaller tankers it suspects of smuggling oil,” the company added in a note.
About a fifth of the world’s supply of seaborne crude oil and oil products passes through the Strait of Hormuz, a chokepoint between Iran and Oman, according to data from analytics firm Vortexa.
The U.S. Navy said on Wednesday that it had intervened to prevent Iran from seizing two commercial tankers in the Gulf of Oman, in the latest in a series of attacks on ships in the area since 2019. read more
“U.S. forces remain vigilant and ready to protect navigational rights of lawful maritime traffic in the Middle East’s critical waters,” Hawkins said.
Iran said on Thursday it had a court order to seize one of the tankers sailing in Gulf waters on Wednesday after it collided with an Iranian vessel. The vessel, the Bahamas-flagged Richmond Voyager, was managed by U.S. oil major Chevron (CVX.N). read more
Tehran seized two other tankers in May including the Marshall Islands flagged Advantage Sweet, which had been chartered by Chevron. read more
Since 2021, “Iran has harassed, attacked or seized nearly 20 internationally flagged merchant vessels”, the U.S. Navy said this week.
Reporting by Jonathan Saul; Editing by Hugh Lawson and Andrew Heavens
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[1/4]A still image obtained from a handout video which captured M/T Richmond Voyager being approached by an Iranian naval vessel during an attempt to unlawfully seize the commercial tanker, according to U.S. Navy, in the Gulf of Oman, provided by U.S. Navy on July 5, 2023. U.S. Naval Forces Central…
DUBAI, July 5 (Reuters) – The U.S. Navy said it had intervened to prevent Iran from seizing two commercial tankers in the Gulf of Oman on Wednesday, in the latest in a series of attacks on ships in the area since 2019.
In a statement, the U.S. Navy said that at 0100 local time (2100 GMT), an Iranian naval vessel had approached the Marshall Islands-flagged oil tanker TRF Moss in international waters in the Gulf of Oman.
“The Iranian vessel departed the scene when U.S. Navy guided-missile destroyer USS McFaul arrived on station,” the statement said, adding that the Navy had deployed surveillance assets including maritime patrol aircraft.
The Navy said that around three hours later it received a distress call from Bahamas-flagged oil tanker Richmond Voyager while the ship was more than 20 miles (32 km) off the coast of Muscat, Oman, and transiting international waters.
“Another Iranian naval vessel had closed within one mile of Richmond Voyager while hailing the commercial tanker to stop,” the Navy statement said, adding that the McFaul directed course towards the merchant ship at maximum speed.
“Prior to McFaul’s arrival on scene, Iranian personnel fired multiple, long bursts from both small arms and crew-served weapons,” the Navy said.
“Richmond Voyager sustained no casualties or significant damage. However, several rounds hit the ship’s hull near crew living spaces. The Iranian navy vessel departed when McFaul arrived.”
U.S. oil major Chevron (CVX.N) confirmed that it managed the Richmond Voyager, that crew onboard were safe and the vessel was operating normally.
The TRF Moss’ manager is listed in public database Equasis as Singapore-based Navig8 Chemicals Asia, but Navig8 told Reuters it was not connected with the tanker. The vessel’s manager could not be immediately located.
NO IRANIAN COMMENT
Iran’s state news agency IRNA said on Wednesday that Iranian authorities have not commented yet on the matter.
“The United States will respond to Iranian aggression together with our global allies and our partners in the Middle East region to ensure the freedom of navigation through the Strait of Hormuz and other vital waterways,” a spokesperson for the White House National Security Council said.
Vice Admiral Brad Cooper, commander of U.S. Naval Forces Central Command, cited “the exceptional effort by the McFaul crew for immediately responding and preventing another seizure”.
Since 2019, there has been a series of attacks on shipping in strategic Gulf waters at times of tension between the United States and Iran.
Iran seized two oil tankers in a week just over a month ago, the U.S. Navy said.
“Since 2021, Iran has harassed, attacked or seized nearly 20 internationally flagged merchant vessels, presenting a clear threat to regional maritime security and the global economy,” the Navy statement added.
About a fifth of the world’s supply of seaborne crude oil and oil products passes through the Strait of Hormuz, a chokepoint between Iran and Oman, according to data from analytics firm Vortexa.
Refinitiv ship-tracking data shows the Richmond Voyager previously docked in Ras Tannoura in eastern Saudi Arabia before Wednesday’s incident in the Gulf of Oman.
The Richmond Voyager was now leaving the Gulf with Singapore listed as its destination, Refinitiv ship tracking showed.
Top ship registries including the Marshall Islands and Greece have warned in recent weeks of the threat to commercial shipping in the Gulf including the Strait of Hormuz.
In another point of tension, the U.S. confiscated a cargo of Iranian oil aboard a tanker in April in a sanctions enforcement operation, sources told Reuters.
That vessel, the Marshall Islands-flagged Suez Rajan, is anchored outside the U.S. Gulf of Mexico terminal of Galveston waiting to discharge its cargo, according to Refinitiv ship tracking.
Reporting by Lisa Barrington and Jonathan Saul; Additional reporting by Dubai bureau and Rami Ayyub in Washington; Editing by Jason Neely, Mark Heinrich and David Holmes
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DUBAI, June 19 (Reuters) – Buoyed by a swift economic rebound post-COVID, Dubai is racing to attract people and capital to drive long-term growth, betting it can avoid past debt crises that dented its global ambitions.
The approach pursued by the glitzy Gulf city-state is a reboot of a flamboyant economic model that for decades focused on property investment, tourism and inflows of foreign capital.
Property is booming once more — helped by Russian demand amid war in Ukraine and laxer residency rules — and analysts this time see more guardrails in place against any repeat of the problems that subdued Dubai after the 2008 global credit crunch.
Home to the world’s tallest tower and man-made islands, Dubai is chasing lofty new goals: A 10-year economic plan known as D33 aims to double the economy’s size and make Dubai one of the top four global financial centres in a decade.
It also wants to increase the length of its public beaches to 105 km from 21 km by 2040 and revive the dusty Palm Jebel Ali island abandoned in the wake of the 2008 financial crisis.
Tourist numbers in 2023 are almost back to levels of 2019, and last year Dubai was the world’s fourth busiest ultra-prime property market, with 219 home sales over $10 million, according to Knight Frank research.
At the same time, the property price surge and demand for the ultra-high-end segment is stirring memories of old excesses.
In 2008, the global financial crisis hit Dubai hard, leading to a flight of capital and people, a crash in property prices and highly leveraged flagship companies known as government-related entities (GREs) struggling to repay debts.
Abu Dhabi, the UAE’s oil-rich capital, eventually stepped in with a $20 billion lifeline, widely expected to be rolled over for a third time.
Nasser Al Shaikh, head of Dubai’s finance department until 2009, told Reuters there is a risk Dubai will become too expensive to live in, and new developments need to ensure ample supply to meet demand for mid-income property as the population grows.
“If private developers cannot provide that, then the government and GREs could play a bigger role to do that and keep prices reasonable,” Shaikh said, referring to the leading companies that have spearheaded Dubai’s breakneck growth.
Dubai’s population grew to over 3.55 million in 2022, official statistics show, up 2.1% from 2021, and 4% since 2020; S&P estimates it to surpass 4 million by 2026.
LESSONS LEARNED
“There is always the risk of a major new round of borrowing (by GRE developers) on unrealistic expectations for real estate sales; however, I am hopeful that learning from previous cycles will mitigate this risk,” said Justin Alexander, director at Khalij Economics and Gulf analyst at GlobalSource Partners.
The Dubai Media Office did not immediately respond to a request for comment on how its strategy is working towards ensuring growth is sustainable and not speculative.
Dubai set up a Debt Management Office in 2022, has repaid or restructured some outstanding debt, and announced plans to list government stakes in 10 companies to raise capital and deepen financial markets. It listed four of those last year.
Shaikh said current finance officials have learned from the experiences of the last 15 years.
“Dubai has a strategy today, and development of capital markets is an important component of Dubai’s overall financial proposition, not only to generate liquidity and to pay off debt but also to deepen capital markets within the financial sector.”
‘GLOBAL SAFE HAVEN’
The United Arab Emirates’ commercial centre, Dubai has shovelled resources into social and business reforms and sectors like digital technology. Oil revenue accounts for less than 2% of GDP, unlike the deep-pocketed capital Abu Dhabi.
Average property prices rose 12.8% in Q1, with villa prices up almost 15%, according to property research firm CBRE. Villa sales have surpassed 2014 highs. Russian buyers were third in Betterhomes’ May top 10 buyers, behind India and the UK.
“Dubai has really set itself as a global safe haven,” said Richard Waind, group managing director at Betterhomes in Dubai, adding it was safe for families and stable politically and financially.
“It’s no longer a speculative market. It’s a market built on genuine investment. I think that’s a very big difference to what we saw in 2008-2009 and perhaps the last peak around 2014.”
The rebound has also bolstered balance sheets of top Dubai Inc companies, including GREs such as Emirates airline, and majority government-owned but listed Emirates NBD (ENBD.DU) and Emaar Properties.
S&P has estimated Dubai’s gross general government debt will fall to 51% of GDP, or about $66 billion by the end of 2023, from 78% of GDP in 2020, although broader public sector debt will stay elevated at about 100% of GDP due to high non-financial GRE liabilities.
Dubai’s five-year credit default swaps, the cost of insuring against a default, reached a historic low of 66 basis points on March 8 this year, well below 316, the highest level it reached during the depths of the COVID-19 pandemic in 2020.
TRANSPARENCY
Last year, Dubai attracted an estimated $12.8 billion in foreign direct investment capital according to the 2022 Financial Times ‘fDi Markets’ report published last month; FDI into Saudi Arabia was about 30 billion riyals ($8 billion).
Despite growing competition from Gulf neighbours, Dubai’s infrastructure, schools and hospitals remain in high demand.
Several people Reuters spoke to highlighted concerns about a lack of data and transparency, particularly among GREs, making it more difficult to properly assess Dubai’s fundamentals.
The UAE was placed on the “grey list” of global financial crime watchdog the Financial Action Task Force (FATF) in 2022, increasing the risk of reduced capital inflows, a decrease in M&A activity and a potential lack of investor confidence.
But some prominent investors are sanguine.
“Dubai has been one of the most resilient destinations,” said Philippe Zuber, CEO of Kerzner International which operates the luxury Atlantis and One&Only resorts, adding Dubai had kept borders open and businesses strong during COVID.
Kerzner, part-owned by Dubai’s sovereign wealth fund, opened the “ultra luxury” Atlantis the Royal in 2023, its second Atlantis resort on Palm Jumeirah island. The Royal Mansion Penthouse, where Beyonce once stayed, costs $100,000 a night.
($1 = 3.6728 UAE dirham)
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Reporting by Rachna Uppal and Yousef Saba; Additional reporting by Lisa Barrington; Writing by Rachna Uppal, Editing by William Maclean
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MEXICO CITY, May 2 (Reuters) – Mexico Pacific is set to build a natural gas pipeline and liquefaction plant in the northern state of Sonora for an investment of up to $14 billion, Mexican President Andres Manuel Lopez Obrador and his office said on Tuesday.
Lopez Obrador on Twitter first identified the company as Pacific Limited, though his office later told Reuters the company’s full name was Mexico Pacific Limited.
A representative for the company did not immediately respond to a request for comment.
Mexican Foreign Minister Marcelo Ebrard had told journalists earlier in the day they had met with Mexico Pacific to discuss “a considerable investment in liquefied natural gas.”
The company plans to ship “out of the Pacific, because its main market is in Asia,” Ebrard added.
According to its website, Mexico Pacific is already constructing a 14.1 million tonnes per annum liquefied natural gas (LNG) export terminal in Puerto Libertad, Sonora.
Lopez Obrador also said Tuesday that “cooperation agreements” had been reached with recently merged rail operator Canadian Pacific Kansas City (CPKC) regarding rail projects in Mexico’s south.
“The president would like (CPKC’s rail network) to connect with the south of the country,” Ebrard said.
CPKC’s network currently extends through Canada and the United States down through central Mexico, with stops on the county’s Pacific and Gulf coasts.
Reporting by Kylie Madry
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DUNTON, England, March 6 (Reuters) – Ford Motor Co’s (F.N) push to use reams of data generated by its vans and trucks – from engines to oil filters or brake pads – to attract more customers in the European and U.S. commercial vehicle market plays out on a 9-metre-long (30 ft) screen at its UK headquarters in Dunton east of London.
During a recent visit by Reuters, that screen showed real-time data from 114,000 vans in Britain so far covered by Ford’s FORDLiive monthly subscription service.
Ford employees were focused on the 98.3% of the vans that were in service – and of those, roughly 8% in need of repairs fairly soon or urgently – but concentrated even more so on the 1.7% vehicles out of action.
The U.S. automaker tracks 4,000 data points via modems it has installed in all commercial vehicles since 2019 – and can warn paying customers of engine problems and basics such as brake pad wear, low oil or diesel additives that are cheap to maintain proactively but expensive to fix if not addressed.
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The automaker has connected all of its UK dealers to its system, so it can arrange repairs and have parts ready for vans before they arrive at a dealership.
Ford, which leads the commercial vehicle market in both Europe and the United States, launched the system in 2021. Hans Schep, European head of Ford Pro, the company’s commercial vehicle business, said it is already close to hitting long-term targets of increasing vehicle “up time” by up to 60%.
Ford estimates that downtime, when a van is out of action, costs an average of 600 pounds ($724) daily per van.
“This has already been a major game-changer,” Schep said.
After a successful test run in Britain, Ford is also rolling out the FORDLiive service in mainland Europe and the United States. The automaker has focused more on its profitable Ford Pro business in Europe than lower-margin mass-market passenger cars.
Ford recently announced engineering job cuts in Europe, but is still hiring software experts for its data services.
Data is a huge battleground for commercial vehicle makers and competition will only intensify with electric models, which are essentially computers on wheels.
Using data to show where vans are, how they consume fuel, how drivers use or misuse them, whether they can skip an oil change, but above all avoiding downtime is becoming as important as the vehicles themselves.
There is also an ongoing fight pitting insurers, leasing companies and car repair shops against carmakers in the European Union over access to connected car data and the vast potential revenue it could generate.
“We plan to grow our leadership position,” said Ted Cannis, chief executive of Ford Pro. “We are going to have many, many more markets that we were not even previously in.”
EASING THE ELECTRIC JOURNEY
Electric vans provide far more data points for Ford and its rivals to work with – including tracking how much range they have left and providing easy, comprehensive charging solutions.
Ford’s Schep said providing that data is crucial for van fleets because according to the automaker’s research, 60% of its corporate customers “are really worried about the journey to electric.”
The UK operations of DHL Express, part of the Deutsche Post DHL Group (DPWGn.DE), has 270 electric Ford E Transit vans with firm orders for 120 more, and is signing up for FORDLiive.
Fleet director Richard Crook said aside from monitoring those vans’ batteries, he wants to tap Ford’s predictive maintenance capabilities.
“We need to get ahead of things and plan maintenance schedules because the vehicle is actually telling you ‘I have a problem,'” Crook said.
Ford rival General Motors Co (GM.N) has also rolled out telematics services including “in-vehicle coaching,” where a voice nicknamed “Karen in the vehicle” coaches drivers against excessive braking, speeding or other bad habits.
Michelle Calloway, director of OnStar Business Solutions at GM, said “Karen” cut fuel use by 30% in 30 days in one customer’s fleet.
“Those are impactful savings scaled across a large fleet,” Calloway said.
Starting with 2024 models, GM will provide a range of OnStar data services free for fleet vehicles. Ed Peper, who heads GM’s fleet sales, said once customers try those services, they are likely to pay for more.
Italian truck, van and bus maker Iveco Group NV (IVG.MI) has around 150,000 connected vehicles using telematics services and has seen a 30% increase in uptime, plus a “single-digit percent” drop in warranty costs so far, said chief technology officer Marco Liccardo.
Liccardo estimates subscription services will generate 40% to 50% of commercial vehicle makers’ profits by 2030 and help franchise dealers survive the shift to electric with fewer parts to service.
“Data will be the oxygen to do that,” Liccardo said.
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Reporting by Nick Carey in Dunton, England
Additional reporting by Giulio Piovaccari in Milan
Editing by Matthew Lewis
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MONTREAL, Nov 8 (Reuters) – Boeing Co (BA.N) urged regulators on Tuesday to subject a new generation of air taxis to the same strict safety standards as commercial passenger planes, saying aircraft designed to make short flights on demand should not be judged on a par with small private planes.
Boeing Chief Strategy Officer Marc Allen’s address at the International Civil Aviation Organization (ICAO) in Montreal was the first time the U.S. planemaker has spoken publicly about the matter.
“We have to unify around the importance of bringing all advanced air mobility vehicles and operating systems to market with airliner levels of safety, with air transport levels of safety, with commercial levels of safety,” he said at ICAO’s Remotely Piloted Aircraft Systems (RPAS) Symposium.
“There is of course significant risk that in an event involving any one of these vehicles that the whole category of advanced air mobility will be subject to penalty.”
Regulators are coming up with design and operational requirements for air taxis, which can take off and land vertically to ferry travelers to airports or on short trips between cities, allowing them to beat traffic.
Allen said regulators must approach advanced air mobility on safety in the same manner as commercial transport if air taxis are to fly over crowded, urban areas. But he added that some air taxis are being lumped into categories such as general aviation where smaller aircraft have different stringencies than larger jetliners.
Small planes “are not an everyday flight solution for broad mobility,” he told Reuters on the sidelines of the event. “They are not in heavy, dense usage over urban populations.”
On Monday, the U.S. Federal Aviation Administration (FAA) issued the airworthiness criteria that Joby Aviation (JOBY.N) will need to meet for its air taxi aircraft.
Allen said regulators, including the FAA, would ideally come up with common requirements for certifying these aircraft, but acknowledged that would take time.
“To us, the more important thing is consensus on commercial safety standards,” he said.
Reporting by Allison Lampert in Montreal; Editing by Lisa Shumaker and David Gregorio
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LONDON, Oct 21 (Reuters) – Owners of Britain’s largest malls, skyscrapers and industrial hubs face hikes in borrowing costs and a recession that could depress prices by up to a fifth, forcing lenders and investors to reassess their appetite for commercial property.
Developed economies globally are grappling with far-reaching consequences of an end to years of ultra-loose monetary policy, which kept asset prices high and the cost of debt low.
So far, nowhere has the shock of this reversal hit harder than in Britain, where clashes between policymakers on how to revive growth and halt inflation have triggered a dramatic repricing across sterling money markets.
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As homeowners reel from a sudden surge in mortgage costs, a spike in five-year UK swap rates has also sent chills across Britain’s $1.6 trillion commercial property sector, where asset prices could slump by as much as 20% by end-2024, analysts at Goldman Sachs said.
Data from MSCI, which tracks monthly changes over 1,794 properties valued at around 37 billion pounds ($41.55 billion), showed values fell by 2.6% in September, the largest monthly decline since July 2016, the month after Britain voted to leave the European Union.
Commercial property investors like real estate investment trusts (REITs) rely on being able to earn more in rents and profits from sales than they shell out in expenses, including costs of debt and equity capital.
Bellwethers like Land Securities (LAND.L), British Land (BLND.L) and Hammerson (HMSO.L) have pushed major refinancing beyond an expected mid-2023 peak in Bank of England’s benchmark rate, earnings statements show.
But good financial housekeeping is just one challenge, as labour, fuel and commodities expenses also raise risks of cash-strapped tenants handing back their keys.
Although less exposed to risky property loans than before the 2007-2008 global financial crisis, banks are already on alert for breaches in loan terms linked to an asset’s market value or the rental income relative to the debt secured on it, sources said.
If these terms, or covenants, are breached, investors may need to refinance earlier than planned, at higher rates. Goldman Sachs analysts predict gross finance costs for the listed UK real estate firms it covers may rise by 75% over the next five years.
James Liddiment, managing director in Real Estate Advisory Group at Kroll, said commercial property prices were already hit by higher borrowing rates, which were a fundamental cost for occupiers and investors alike.
“Given the likely number of those impacted, and the level at which rates are projected to rise, lenders may be forced to agree covenant waivers in an attempt to stabilise loan books,” he told Reuters.
UK REITs are using less leverage now than before the financial crisis. But as property values dip, average loan-to-value ratios have crept up to 28% from 23% at the start of the year, according to Zachary Gauge, head of real estate research at UBS.
OCCUPATIONAL HAZARD
Worries about financing costs follow years of concern over rents for some REITs, as the pandemic emptied offices, shops, pubs and restaurants, reducing businesses’ demand for space.
UK office occupancy rates were around 30% in recent weeks compared with an estimated pre-pandemic average of 80%, according to Remit Consulting.
Leisure and retail property vacancy rates also remain above pre-pandemic levels, Local Data Company figures show, at 10.6% and 15.4% respectively. Footfall at UK retail destinations is down around 15% on average in 2022 compared to 2019, according to Springboard data.
Central London office space demand, particularly in older buildings, is also weakening.
Just 2.6 million square feet (241,548 square metres) of space was let in the third quarter, 30% down from the second quarter and 14% below the 10-year quarterly average, CBRE (CBRE.N) said.
Some occupiers are scaling back to curb costs and energy consumption, which is likely to further compress property firms’ rental incomes further.
HSBC (HSBA.L) told staff this month it was cutting its office space globally by around 40% from 2019 levels.
The lender could ditch its iconic skyscraper home in London’s Canary Wharf as part of a broader review and in the meantime is consolidating staff across fewer floors at the 45-floor tower, reducing the occupied space by 25%.
Marks and Spencer (MKS.L) is accelerating plans to shut 67 larger “full line” stores over five years in a blow to its landlords and nearby businesses.
Uniform Business Rates, a tax levied on commercial property, are likely to leap by 3 billion pounds next April, the biggest annual jump since 1991, after inflation hit 10.1% in September, the month in which rates for the following year are set.
“…further business failures and shop closures will result unless the UBR is frozen again,” Jerry Schurder, Business Rates Policy Lead at Gerald Eve, said.
The stock market also signals growing investor caution around UK commercial property, with an index of 15 UK REITs down 44% so far in 2022 (.TRXFLDGBPREIC) compared with a 9.8% fall in the wider FTSE 350 (.FTLC) .
Some international investors are also reporting British developers’ concerns about their ability to finance construction.
“The developer is saying: we would want to sell it now, or we are more open to selling it now, and so much so that we are willing to give away a proportion of (…) the developer profit in order to keep us moving forward,” Martin Zdravkov, lead portfolio manager at German asset manager DWS, said.
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Editing by Tomasz Janowski
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BERLIN, Oct 8 (Reuters) – Cables vital for the rail network were intentionally cut in two places causing a near three-hour halt to all rail traffic in northern Germany on Saturday morning, in what authorities called an act of sabotage without identifying who might be responsible.
The federal police are investigating the incident, Interior Minister Nancy Faeser said, adding the motive for it was unclear.
The disruption raised alarm bells after NATO and the European Union last month stressed the need to protect critical infrastructure after what they called acts of sabotage on the Nord Stream gas pipelines.
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“It is clear that this was a targeted and malicious action,” Transport Minister Volker Wissing told a news conference.
A security source said there were a variety of possible causes, ranging from cable theft – which is frequent – to a targeted attack.
Omid Nouripour, leader of the Greens party, which is part of Chancellor Olaf Scholz’s federal coalition, said anyone who attacked the country’s critical infrastructure would receive a “decisive response”.
“We will not be intimidated,” he wrote on Twitter.
CHAOS BEFORE ELECTION DAY
“Due to sabotage on cables that are indispensable for rail traffic, Deutsche Bahn had to stop rail traffic in the north this morning for nearly three hours,” the state rail operator said in a statement.
Deutsche Bahn (DB) had earlier blamed the network disruption on a technical problem with radio communications. Spiegel magazine said the communications system was down at around 6:40 a.m. (0440 GMT). At 11:06 a.m, DB tweeted that traffic had been restored, but warned of continued train cancellations and delays.
The disruption affected rail services through the states of Lower Saxony and Schlewsig-Holstein as well as the city states of Bremen and Hamburg, with a knock-on effect to international rail journeys to Denmark and the Netherlands.
They came the day before a state election in Lower Saxony where Scholz’s Social Democrats are on track to retain power and the Greens are seen doubling their share of the vote, according to polls.
Queues rapidly built up at mainline stations including Berlin and Hanover as departure boards showed many services being delayed or canceled.
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Reporting by Sarah Marsh; Additional reporting by Andreas Rinke and Christian Ruettger; Editing by David Holmes and Mark Potter
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