The outlook for global commercial property markets will be determined by the exact future path of the two-speed economic recovery currently underway, according to DTZ's '2011 Global Outlook' report.
Strong GDP growth projections in most Asian and CEE countries will trigger strong occupier demand. In turn, this underpins strong rental and capital value growth. In contrast, a protracted recovery in the euro zone with slow GDP growth will produce more subdued increases in rents and capital values.
The report forecasts modest capital growth across most regions between 2011 and 2015. However, current economic, financial market and regulatory uncertainties will continue to influence the pattern of recovery. DTZ research predicts that during the next five years, rental growth will be the primary driver of capital value growth, since further yield compression from the current low level is unlikely. Consequently, total return is forecasted to be lead by existing income yield, especially in Western European markets.
The DTZ report presents a base case for global property forecasts on the assumption that the economy shows real global GDP growth of 3.8% per annum over 2011 to 2015. To quantify the impact of the economic and financial uncertainties, the report presents the results of upside (+0.5% pa) and downside (-0.6% pa) economic scenarios. The analysis calculates the impact of changes in GDP growth on the prime office market rent forecasts. Office rents are most sensitive to GDP variations in Tokyo, Hong Kong and Frankfurt, less sensitive in Paris, London West End and Singapore, with New York the least affected.
Tony McGough, Global Head of Forecasting & Strategy Research at DTZ commented: "Significantly, office rental growth forecasts remain positive under the downside scenario in all markets, except Tokyo, implying that the prime rental recovery will remain firmly entrenched."
The report predicts that occupier interest in 2011 will remain focused on the prime end of the market. In many locations and across sectors, prime rents have yet to reach pre-crisis levels. Prime UK office rents are forecast to increase 5.4% in 2011 in contrast to a 1.2% rise in secondary rents. Despite this, the historically high divergence of yield spread between prime and secondary property is expected to narrow.
Hans Vrensen, Global Head of Research at DTZ, said: "We expect investor interest to continue to be focused on prime grade property. However, we predict that a reduction in prime availability and strong re-pricing to date will increasingly force investors' to target secondary properties. As a result, the gap between good and poor quality secondary properties is set to widen going forward."
Many property investors remain cautious due to economic uncertainties. This is compounded by the recent raft of regulatory reforms and significant, unresolved debt issues, especially in Western markets. The impact of myriad new regulatory reforms and the pending unwind of monetary policy supports are expected to indirectly slowdown the property market recovery. Despite these factors, 2010 saw significant increases in global transaction volumes. DTZ research estimates that a record US $376 billion of equity will be available to target real estate markets between 2011 and 2013. Looking forward, it is anticipated that more proactive equity investors will continue to find innovative solutions to match the available equity and close the US $245 billion global debt funding gap.
"In Bucharest, the office market revealed the premises of the highest increase reported by a real estate sector on the local market, based not only on the increasing take-up volume on a year-on-year basis, but also considering the estimated decreasing trend of the vacancy rate. At the end of 2010 the total office stock reached 1.724 million m² as a consequence of an annual new supply of 204,000 m², recording a 38% decrease year-on-year," commented Bogdan Sergentu, Head of Valuations and Consulting, DTZ Echinox.
"Consequently to difficult access to funding and