Although investors risk appetite is improving in some European countries, the majority of commercial property markets across the region recorded falling occupier activity and negative expectations for rents and capital values during the last quarter of 2012, says it’s Global Commercial Property Survey.
In the rest of the world, sentiment in real estate markets generally remained reasonably positive. Nowhere is this more the case than in Asia, where the results for both occupier and investment markets paint a fairly robust picture. Both, for rent and capital values, the survey points to further healthy increases in Thailand, Hong Kong and China.
In the European occupier market, conditions were broadly unchanged compared to last quarter, with the majority of countries covered in the survey recording falling tenant demand and a negative outlook on rents.
RICS says that the best performing markets remain Germany and Russia. Sentiment in the Russian real estate market remains firm with a material imbalance between the demand for, and supply of, prime space helping to underpin rental expectations. And Germany continues to buck the wider trend in Europe with both occupier and investment demand still on a rising path, although in both cases not by as much as a year ago.
According to the survey, a moderate improvement in investor risk appetite in some European markets, such as Ireland, Germany, Russia, Scandinavia, Greece, Switzerland and Belgium, widely attributed to the European Central Bank’s Outright Monetary Transaction (OMT) programme which effectively enables the ECB to act as lender of resort to euro zone governments, should lay the groundwork for an eventual recovery in the economy and commercial property sector over the medium term.
But RICS warns that the coming year is likely to remain challenging. Although financial market conditions have improved markedly, including a significant compression in euro zone sovereign bond spreads, this has yet to feed through to the real economy where private sector lending is still contracting at the headline level. RICS says this partly explains why capital value expectations remain negative in the majority of cases. The split between those countries expecting rising and falling rents was unchanged on the quarter.
‘Asia appears to remain a particularly attractive location for investors seeking out commercial real estate assets with sentiment still strongly positive. But just as interesting is the emerging trend in the UAE, where the mood is improving in a material way after the most calamitous of downturns, and the US, which now seems to be firmly in recovery mode,’ said Simon Rubinsohn, RICS chief economist.
‘Of course, the global economy continues to face significant risks but the numbers suggest that property continues to be viewed in a generally positive light away from Europe where the news flow for real estate still remains particularly challenging,’ he explained.
‘Here, the expected flow of distressed properties is continuing to undermine any prospect for a more stable trend across much of the region and while this may be prompting a slight uptick in investment enquiries from opportunistic investors in some markets, it is contributing to the continued weakness in capital values away from the most sought after locations,’ he added.
