The quarter three Global Commercial Property Survey published today (Wednesday 02 November) by the Royal Institution of Chartered Surveyors, sentiment is less upbeat for the rest of the year and is most negative in Europe.
More countries indicated fewer investment enquiries and development starts this quarter than in the previous quarter while available space rose considerably across the countries surveyed. In addition, negative sentiment colours the global outlook with almost two thirds of countries reporting negative rental and capital value expectations and nearly two fifths reporting an expected decline in investment demand.
‘While certainly not heartening, it is also not especially surprising that this quarter’s survey results reflect the impact of today’s softer macro economic picture. The global real estate market flourishes when economic conditions are stable and strong,’ said Simon Rubinsohn, RICS chief economist.
‘At the moment we are dealing not only with considerable levels of uncertainty in financial markets around the world, but also an intensification of the euro area crisis and the threat of a recession in the US. Confidence has definitely taken a knock,’ he explained.
‘That said, there remain key areas of resilience in China, Brazil and Russia and we have seen positive momentum in several other countries as well, Japan most notably. Although we doubt that the developing economies can completely insulate themselves from the challenges facing the West, our suspicion is they will continue to outperform and this will be reflected in real estate markets,’ he added.
Market shows signs of turning around in Japan after a disappointing first half of the year. Respondents reported considerable and positive swings across all indicators and the rate of available space slowed. Most significantly, says the report, agents in Japan are feeling a little more optimistic about next quarter.
India’s momentum has slackened a little. A more restrictive monetary policy and the subsequent slow down in its economy appears now to be having some impact on commercial real estate activity and sentiment. For the first time since 2009, occupier demand moved into negative territory pointing to a small fall in the desire to take up space while availability rose.
Consequently, rental and capital value expectations both moved from positive into negative Expectations for investment activity next quarter have also edged back. However, the likelihood is that growth in the Indian economy will still remain at in excess of seven percent, which should provide a layer of support for the real estate sector.
Rental and capital value expectations for the rest of the year remain high in Brazil. Agents also continue to be positive regarding forthcoming investment demand, although slightly less positive than last quarter.
Respondents report a continued positive trend in occupier demand and development starts although available space did edge up slightly. The impact of recent interest rate cuts from the Banco Central do Brasil (Brazilian central bank) are yet to take effect on the commercial market, but will further support strength on the occupier side, the report points out.
While still more robust than most, China’s commercial property market lost some momentum this quarter. The pace of tenant demand moderated somewhat while available space once again moved into positive territory. That said, rising occupier demand still continues to far outstrip rising supply.
Investment enquiries remained relatively flat while development starts picked up slightly. Looking ahead, expectations for next quarter remain strongly positive, but the pace of expected growth seems to have slowed.
‘Given the recent news flow regarding Chinese developers, coupled with the less accommodating policy environment, we would expect activity to show further signs of stabilising,’ the report says.
Agents in France reported a faltering in the commercial property market with a sharp drop in tenant demand while available space continued to rise, and at a faster pace. Respondents seem relatively pessimistic for the upcoming quarter as well with capital value expectations pushing further into negative territory.
‘With the euro crisis continuing, and the prospect of a Greek default damaging French banks’ balance sheets, we expect conditions to continue flat lining for the remainder of the year,’ the report adds.
But the commercial real estate market in Germany continues to perform relatively well despite the growing woes of its near neighbours. Indicators across the board remained positive although most posted a marginal moderation in pace. Similarly, agents continue to be optimistic for the fourth quarter, but slightly less so than last quarter.
Relatively robust growth, largely aided by strong export demand from emerging markets suggests that this country is best placed in Europe to withstand negative shocks resulting from the ongoing euro area crisis.
