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Global commercial property markets slowing improving despite economic woes

The firm’s Global Office Index reveals t5hat the fourth quarter of 2011 was the eighth consecutive quarter where prime office rents have risen, up 0.8% over the previous quarter and 6% up on the fourth quarter of 2010. Global vacancy is edging down to the lowest point for the past two years at 13.6%.

‘The majority of global leasing markets are holding firm, and many are showing remarkable resilience especially among the BRIC countries, as well as robust showings from Canada, Australia, Germany and the Nordics,’ said Jeremy Kelly, director in Jones Lang LaSalle’s global research team and report author.

‘While leasing markets in the major financial centres are softening, the limited supply pipeline should ensure that they do not move significantly out of balance,’ he added.

The index tracks the rental performance of prime office space across 81 major markets in the Americas, Asia Pacific and Europe.
It found that rental growth rose the highest in the Americas at 1.2% compared with the third quarter 2011, as landlord leverage gradually increased in the majority of markets.

In Asia Pacific markets have seen rental growth decelerating from 2.5% in the third quarter to just 0.9% in fourth quarter as corporate demand began to slow.
Despite the negative economic backdrop, Europe’s office markets showed some improvement in the fourth quarter with growth picking up to 0.4% from a virtual halt in the previous quarter.

It says that leasing volumes will be steady in 2012 with positive rental growth expected in most major office markets with Beijing, Toronto and San Francisco topping the charts with potential double digit increases.

Investors, already wise to the resilient fundamentals in the commercial real estate sector, continue to choose real estate given attractive investment status compared with alternative investments.

The index also shows robust capital market investment volumes in the fourth quarter of 2011. A total of US$411 billion was transacted in 2011, 28% up on 2010. 2012 transaction levels are set to match 2011, with upside potential in the Americas.

‘The markets are witnessing a flight to quality, traditional in times of uncertainty, as investors pivot towards core assets in those major cities with strong economic fundamentals and/or with safe haven characteristics,’ said Arthur de Haast, lead director of the International Capital Group at Jones Lang LaSalle.

‘While there is capital available for commercial real estate, debt financing around the global will be more constrained in 2012.  We’re seeing capital appreciation slowing as yields flatten, and spreads between core and secondary assets are widening,’ he added.

The report concludes that while commercial real estate expectations for 2012 have been tempered, barring significant financial system shocks, commercial real estate investment and leasing volumes are likely to be maintained at 2011 levels.