Preliminary direct commercial property transaction volume figures released by Jones Lang LaSalle Capital Markets Research demonstrated a subdued first quarter of 2012, with recorded volumes down compared to the same period in 2011.
All major commercial property markets globally recorded a quieter start to the year after a very active 2011, particularly in the final quarter. Also, substantial one-off transactions in established markets, such as the sale of the Trafford Centre Shopping Centre in the UK for US $2.6 billion (approx. 1.9 billion) that enhanced volumes in Q1 2011 were not repeated in Q1 2012, leading to a fall in total volumes recorded. The decline was also due to sustained economic pressures restricting the availability of debt finance, especially for new borrowing.
Arthur de Haast, Head of the International Capital Group at Jones Lang LaSalle said: "Whilst volumes are down in Q1 2012 and the economic backdrop remains uncertain, the underlying attractiveness of real estate continues due to strong demand and sound fundamentals. The final quarter of 2011 was one of heightened uncertainty in Europe, but reassuringly policy makers realized the seriousness of the situation and took the appropriate action, which helped to stimulate activity across the continent.
"Volumes and sentiment in the US continues to improve with growth increasing by 16% on a year on year basis in Q1 2012, on the back of improving economic indicators. Canadian and Mexican volumes increased more than 50% over the same period.
"2011 was the second strongest year on record for Asia Pacific with annual volumes at $98 billion. Despite a slowdown in Q1 2012 compared to Q1 2011, we expect performance to improve during the coming months as monetary and fiscal policy is gradually loosened around the region."
The desire to close deals in the final quarter of 2011 was evident with a further upgrading of the full year numbers. Such was the extent of activity in 2011 as a whole that it will take time for that momentum to build again in 2012.
David Green-Morgan, Global Capital Markets Research Director at Jones Lang LaSalle commented: "Commercial property continues to draw capital and interest from institutional investors, increasingly through allocations diverted away from equities, commodities and other asset classes. This trend will continue as the attraction of fixed assets increases in line with the predicted rise in global inflation over the medium-term.
"Whilst the global economic road ahead might not be completely smooth, investor sentiment remains positive. The on-going debt issues in commercial property will continue to pose problems for some and present opportunities for others all of which will contribute to transactional activity."
Concluding, de Haast added: "Whilst the prime, major cities of the world such as London and New York will continue to attract large amounts of capital we expect investors to examine more closely the increasing number of opportunities in secondary markets as pricing in this area continues to adjust."
While investors remain somewhat cautious most are continuing to execute their strategies albeit with longer transaction times and more detailed underwriting. Given the weight of capital available Jones Lang LaSalle expects full year 2012 transactional volumes to be consistent with 2011 at circa $400 billion, with a number of portfolio deals globally expected to boost activity.
2012 is likely to be another year dominated by policy responses to changing economic conditions, for activity to materially surpass 2011 we would need to see more debt available globally and for a sustained increase in activity in secondary markets, which we haven't seen as yet in 2012.
Source: Jones Lang LaSalle