Published & Updated as on - 2010-04-09
While
2010 will be the year when global commercial real estate recovery begins,
robust, broad-based growth is not expected until 2011. The global economy is
moving towards recovery, thanks in large measure to government economic
stimulus programs and loose monetary policies. Early estimates from IHS Global
Insights forecast positive third-quarter growth in most G20 countries says a
recent study by Jones Lang LaSalle’s Global Market Perspective that outlines
the case for a global property market recovery — albeit an uneven one — that
will begin in earnest in 2010 and expand in 2011. According to the study, real
estate recovery in the year ahead will follow the specific rhythms of a given
market, while occupiers and investors will try to strike a balance between
challenges and opportunities. Markets where capital values have fallen beyond
what economic and property fundamentals warrant are likely to lead the
recovery.
The report says that the Asia Pacific region has emerged from recession, and
its economic prospects continue to improve. According to Global Insight, a real
GDP growth of five percent is expected in 2010, considerably stronger than in
2009, although still lagging the average growth of 2003-07 due to the region’s
reliance on overseas demand. Overall leasing demand remains weak but is
starting to improve as occupiers take advantage of major rent corrections. In
most office markets, rents are starting to stabilise following typical falls of
40 to 60 percent from their peak. Leasing conditions will continue to be
favourable to occupiers until at least mid-2010 in most markets, with
supply-constrained markets likely to see the earliest turnaround in rents.
Investor sentiment is improving although overall investment activity is still
significantly below the last two year levels. Although data suggests that
capital values are generally likely to fall further in 2010, some markets have
already bottomed and others will do so in early 2010. In a few markets in Asia,
prices have already begun to rebound, largely driven by strong buying interests
amongst local investors. Against that backdrop, however, governments around the
region have signalled their intention to restrain the development of asset
bubbles and this is expected to limit the extent of upward movement in values
in 2010.
In many countries, cash-rich investors are
beginning to move from the sidelines as the market floor in both pricing and
transaction volumes draws near. Parts of Asia and Europe already are moving
higher from pricing and activity lows. During the third quarter, initial yields
in London, Shanghai, Hong Kong and Singapore fell by 25 to 90 basis points
(bps). The United States remains the exception to this picture of slow
improvement, as yields merely slowed their increase or stabilised.
In
leasing markets, building supply is generally stable, but negative demand for
real estate persists in many markets including the United States, the UK, most
of Western Europe, Australia and Japan. Although the pace of decline is slowing
in most global centres, leasing activity has not found a bottom in either
pricing or demand. Jones Lang LaSalle forecasts a bottoming of leasing markets
in the first half of next year in much of Asia and parts of Europe, and by the
end of 2010 in many US markets.
In the Asia Pacific region
where investors almost exclusively emphasised residential and retail sectors
earlier this year, they have now broadened their horizons to include office
buildings. And although forecasts about the impact of this change vary, it is
generally agreed that as much as $50 to $100 billion of insurers’ money will
ultimately make its way into commercial real estate.
As per
the Global Market Perspective, as maturities mount, those with capital to pool
will be able to buy distressed assets. While the floor is in sight, now is a
good time to get those investment pools ready to acquire distressed
developments. During 2010, companies will seek to capitalise on opportunities
to purchase properties at attractive valuations and to reduce their occupancy
costs. By mid-2010, this activity is likely to be a significant driver of a
commercial real estate recovery.
Source: DC 10/4/10
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