Sentiment in global real estate market improves
Positive sentiment towards real estate is being felt in an increasing number of countries, reports the Q1 2011 RICS Global Commercial Property Survey. The survey shows that more property professionals, particularly in emerging Europe, appear increasingly bullish towards the occupier market. In addition the survey suggests a positive outlook for Q2 2011, with more countries expecting rents to rise and capital values to increase than in previous quarters.
RICS' Global Commercial Property Survey is a quarterly guide to the developing trends in commercial property investment and occupier markets around the world. Providing a snapshot of sentiment, the current edition details market conditions for the first quarter of 2011 based on information collected from leading international real estate organisations, local firms and other property professionals.
Commenting on the survey, Simon Rubinsohn, RICS Chief Economist, said: "Sentiment continues to improve across much of the global commercial property market, which reflects the fact that more of the world is now beginning to enjoy economic recovery. Real estate in some countries still remains under considerable pressure, but elsewhere it is booming to such an extent that governments have been forced to take action to try and slow things down. This divergence between the leaders and laggards is something that we expect to persist for some while to come.''
China on the boil
Despite the measures implemented by the Chinese government - designed to scale back bank financing, the real estate market in China and Hong Kong continues to heat up. Tenant demand increased at a faster pace in both jurisdictions in Q1 2011, and, looking ahead, rental and capital value expectations remain strongly positive in both markets for Q2 2011. For China, the respective net balance scores are +76 and +79, while in Hong Kong they stand at +81 for both series. Given the implications for the global economy should the Chinese property market continue to overheat, it seems likely that further interest rate increases will be sanctioned by the authorities as the year unfolds.
Serial woes for peripheral Europe
Despite the government bailouts peppering peripheral Europe, these countries remain in the grip of sovereign debt crises and their real estate markets remain fragile. While rental expectations for Q2 2011 moderated, they remain in negative territory, as do capital value expectations. Greece and Ireland sit firmly at the bottom of the table for both these forward-looking indicators while Portugal and Spain continue to produce weak readings. The challenges facing real estate in these countries is now being heightened by the recent decision of the ECB (European Central Bank) to start tightening monetary policy in the euro area. As a result, many expect further interest hikes over the balance of 2011; an expectation that helps to explain the caution expressed by respondents from these countries to the survey.
US optimism grows
Likely reflecting the impact on the economy of President Obama's 2010 federal spending programmes and the monetary boost from the US Federal Reserve, the results of this quarter's survey show continued improvement in the US commercial property market; an improvement first noted in Q4 2010. The net balance score for tenant demand remained in positive territory for Q1 2011, while transaction numbers and the number of bidders per property also rose. Most significantly, for the first time since 2008, agents report a positive net balance score when it comes to rental expectations for Q2 2011. Taken in conjunction with the net balance score for capital value expectations of +12, it is clear that agents are feeling more optimistic about the forthcoming quarter for commercial property in this country.
Other Regional Highlights
Brazil
While the rate of growth in tenant demand slowed in Q1 2011, available space fell sharply from a net balance score of -17 to -39. Inducements remain unchanged after several quarters of decline and agents report continued positive sentiment on investment activity, both in terms of transactions and the number of bidders per transaction. Looking ahead, agents seem optimistic regarding rental and capital value expectations for Q2 2011, but the likelihood of higher interest rates later in the year could dampen sentiment a little.
France
Some significant and positive shifts were seen in France's commercial property market this quarter reflecting, in part, the surge in business confidence . The balance of respondents suggesting tenant demand had increased climbed from +4 to +16, while agents also report a moderation in the growth of available space - from +17 to +5, quarter over quarter. Looking ahead, rental and capital value expectations also remain in positive territory for Q2 2011, the latter seeing considerable rise in pace from +8 to +39.
Germany
The German commercial property market continued to boom this quarter, maintaining the momentum seen in Q4 2010. Tenant demand increased from a net balance score of +42 to +55 while the number of bidders per transaction increased from +23 to +56 quarter over quarter, indicating increasing interest in the sector. In addition, sentiment towards the amount of space available for occupation moved into negative territory with agents reporting a net balance score of -20 (i.e. a decline). This, coupled with the country's strong economic performance, helps explain the upbeat mood of agents which is represented by an improvement in the rental outlook (from a net balance of +8 in Q4 2010 to +52 this quarter) and capital value expectations also remaining positive (+36).
India
Despite the fact that interest rates are rising and inflation remains high, the market is showing considerable resilience. Agents report that tenant demand continues to increase albeit at a slower rate than in the previous quarter. Looking ahead, capital values for Q2 2011 are expected to remain positive (+40) with sentiment towards rental expectations also firm.
Russia
Expectations for solid growth in 2011 were reflected in the real estate market performance for Q1 2011. In-country agents report that both investment demand and the number of investors per transaction rose at a faster pace this quarter while tenant demand remained very strong (+71) and inducements declined for third consecutive quarter. Russia ranks fourth highest in terms of rental expectations for Q2 2011 (out of all the countries surveyed) and capital value expectations also remain high (+50) although less positive than Q4 2011 (+73).
UK
Overall, the Q1 2011 survey paints a continuing weak picture for UK commercial property although a pick up in tenant demand was seen this quarter with the net balance improving to +14. Inducements offered by landlords continue to increase, while property professionals suggest largely no change in investment activity. Uncertainty over the economic outlook combined with increasing available space as the public sector rationalises suggests that the market will continue to languish into Q2 2011. Indeed, agents are expecting further declines in both rents and capital value going forward. However, in contrast to this, prime property in the capital continues to outperform markets in the rest of the country.