Macro-economic and political landscape uncertainty suggests that a cautious outlook for commercial real estate is likely to persist into 2012, according to a new report from CBRE Global Research.
The Global ViewPoint for 2012 notes that high-quality real estate assets in prime locations should continue to perform well compared to secondary real estate and very competitive with regard to other asset classes.
"With the level of uncertainty today, it is inevitable that the outlook for real estate will in many ways be equally unclear," said Raymond Torto, CBRE's Global Chief Economist.
"It is important to note, however, that the perception of the inflation-hedging capabilities of core real estate holds considerable appeal to investors and commercial real estate will offer competitive risk-adjusted returns relative to many other asset classes in 2012."
The CBRE Global ViewPoint analysis anticipates that occupiers in 2012 will continue to exercise caution in their decisions, and demand for space will remain moderate. Investors in Europe and the US will therefore tend to adopt more defensive strategies, focusing on high-quality buildings in prime locations within the most liquid and transparent markets.
A lack of new construction in many markets globally will also boost the performance of existing prime properties.
"Current supply shortages in many of today's core markets have positive long-term implications for supply/demand balance, even in sub-normal economic growth periods," added Dr. Torto.
Commenting on the European market, Peter Damesick, Chief Economist for the EMEA region, CBRE, said: "The resilience of prime European real estate, evident over the past turbulent year, will be supported in tougher economic conditions in 2012 by the widespread lack of new property supply."
The report notes that value-add investment strategies are more directly dependent on the economy's growth or recovery, and are therefore likely to be less popular in this environment. As a result, secondary property will continue to underperform from an investment point of view.
Previously, the stronger economic prospects for Asia meant that investors there have been more aggressive. But the CBRE analysis finds that with economic growth starting to slow in China and concerns about the global impact of the economic slowdown in Europe and slow growth in the US occupiers and investors are also becoming more cautious in many markets across Asia.