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Signs of recovery in global property market
20 June 2010 By Marie Hunt
For the last number of weeks, the world’s attention has focused on the euro crisis and sovereign debt issues.
There is no doubt that the euro crisis will affect the speed of recovery in the global economy, but whether it will be a significant barrier to recovery has yet to play out.
A smooth or uninterrupted path to recovery is not expected, but there are increasing signs from a number of jurisdictions that property market performance generally is starting to move in a positive direction.
Investment sales activity in the US continues to revive slowly from the depressed levels of 2009.
For the market as a whole, the volume of investment activity surged 126 per cent in the first quarter of 2010 compared with the same period last year, when market activity hit trough levels.
In the US leasing market, the rate of decline in commercial property fundamentals has been declining and there are strong signs of life in the capital markets.
Indeed, the first quarter of this year saw the best quarter for commercial real estate in quite some time.
Entering this year, Asian economies demonstrated more evidence of a heated recovery, bordering on overheating.
Growth is being supported by a strong rebound in exports, coupled with a robust performance of consumer markets in China and India, the combination of which has resulted in an improvement in the region’s economic performance.
The driver of economic growth in the first quarter of this year in the Pacific region was Australia, where the Reserve Bank was so convinced of the fast pace of recovery, it moved the interest rate target up 25 basis points in March, April and May.
The official cash rate target is now 4.5 per cent - a high rate by global standards and a testament to the growing strength of the economy.
European commercial real estate investment reached €19.1 billion in the first quarter of 2010, an increase of 65 per cent on the same quarter last year.
This confirms the general upturn in European investment activity.
We expect a pronounced year-on-year improvement in 2010, with much focus on the London market, which has witnessed an unbelievable double digit rebound since last August.
Rental values in many European locations are also showing signs of growth. Indeed, the CBRichard Ellis office rent index for the EU-15 area rose by 1.1 per cent in the first quarter this year, which represents its first quarterly increase since mid-2008.
While improvement is highly concentrated in a few markets such as London and Paris, the position across the region is mostly one of stability In Ireland, despite the economic and political backdrop, there have been tentative signs of recovery emerging, not least the fact that prime commercial property prices now appear to have stabilised and there is renewed investor interest from domestic and overseas buyers in prime real estate, particularly considering the arbitrage between prime yields and the cost of funding.
The occupier markets in Ireland have also been demonstrating resilience, with many occupiers taking advantage of the relative value on offer in the current depressed economic environment.
The global financial markets remain in turmoil and recovery is likely to be bumpy. A significant rebound in real estate trading volumes or values over the next number of years is not widely anticipated.
However, there are signs that the global real estate market is slowly emerging from the biggest downturn it has ever experienced.
Clearly, this will give rise to opportunities.
Marie Hunt is director of research at property consultants CB Richard Ellis
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