As occupier demand for commercial property gained momentum across most European markets during the last quarter of 2010, rents are expected to improve in the coming months, says the latest RICS Global Commercial Property Survey, published on February 15, 2011.
Comments from respondents indicate that the recovery of the occupier market is broadening in the region, with a positive effect on rental expectations and progressively reducing the problem of property oversupply in most markets.
Russia and Ukraine experienced the strongest occupier market growth, followed closely by Germany, influenced by a strong economic climate, falling unemployment and rising consumer confidence. The situation is also improving in Central & Eastern European markets such as Czech Republic and Poland.
However, market conditions appear worse in European 'peripheral economies' such as Greece, Spain, Ireland and Portugal, with tenant demand and rental expectations falling sharply in Q4 2010, as fiscal austerity stifles growth, sovereign debt concerns and high unemployment continue to plague these countries.
On the other hand, only 13 countries, out of 24 covered by the survey, recorded a rise in investment activity compared to 17 in Q3, having inevitably impacted capital value expectations. Investment markets in Poland and Turkey recorded the best results in the region. Across Europe the retail and office sectors improved the most.
In the other world regions rental expectations for Q1 2011 are most positive in Latin (as well as Central) America and Asia. The responses from Peru are particularly upbeat but, amongst the major markets, Hong Kong, China, Singapore and Brazil lead the way. The contrast to this is provided by Japan where the net balances of respondents continue to foresee further rental declines.
The responses for the investment market are broadly similar, with capital value expectations most favorable in Asia and Latin America amongst the major markets. Interestingly, the resilience of the Chinese and Hong Kong property markets suggests that the impact of the well-publicized measures taken by the Chinese government to try and cool developments in the real estate sector has been limited. In China, both tenant demand and rental expectations posted strongly positive net balance scores, +57 and +67, respectively, while in Hong Kong, rental expectations rose to +88 from +70 last quarter.
Meanwhile, there is increasing evidence to suggest that the US commercial property market also seems to be improving. Capital expectations picked up this quarter, showing a positive net balance of +15. This, in turn, seems to be driving a positive swing in US investor sentiment. Investment transaction activity rose quarter over quarter (from +28 to +36) as did the number of investment bidders per property. Rental expectations, while still in negative territory, were less so than previously.
Commenting on the survey, Simon Rubinsohn, RICS Chief Economist, said: "Sentiment seems to be improving across much of the global commercial property market. Solid growth in Asia, Latin America and parts of Eastern Europe is providing significant support for the real estate sector.
"Indeed, a key reason for central banks raising interest rates in these parts of the world is to head off concerns over the re-emergence of another asset price bubble. Even so, our suspicion is that these markets will see the strongest gains in capital values over the course of 2011.''
Source: RICS Europe