Asia Pacific set to lead upswing in global commercial leasing markets in 2011

 
Global direct commercial real estate investment volumes will rise by 25 to 35% on 2010 levels. A significant weight of equity capital will target real estate and fresh capital raising will further enliven the market, according to the Global Market Perspective report from Jones Lang LaSalle.
 
It predicts that in 2011 banks and servicers will adopt a more aggressive approach to the disposal of non performing assets, leading to the release of more secondary product and the CMBS market in the US will continue to gather pace, but will remain well below pre crisis levels.
 
It also says that leasing volumes will be at their highest level since the global financial crisis began with corporate occupiers displaying greater confidence to do deals but they will continue to push for the best possible terms
 
Although activity in the world’s major commercial real estate markets is expected to continue to strengthen during 2011, building on the footholds established during 2010, the  recovery will be segmented by product type and geography, with prime property continuing to perform better than secondary, and Tier I cities outperforming Tier II and III cities.
 
In Asia Pacific, strong economic conditions and business confidence will boost office take up in 2011, it says. ‘Relocation and upgrading are likely to underpin the bulk of demand, although with stronger hiring activity in markets such as Hong Kong, Singapore, China and India. Expansion demand is expected to accelerate as corporate occupiers equip themselves for future growth,’ the report says.
 
Net absorption across Asia Pacific’s Tier I office markets is projected to reach a record 4.5 million square metres in 2011, almost double the 2009 level and about 10% higher than the previous peak in 2007.  Tier I markets in India and China will see the highest net absorption rates, enhanced by rapidly growing domestic corporate sectors and expansion by multinational corporations.
 
In both Europe and the US, take up levels are expected to rise modestly on 2010 levels. Overall, net absorption is likely to remain flat, although some core Tier I office hubs could register relatively strong absorption rates. German, Nordic and CEE markets will also see strengthening demand. Conversely, most Tier II cities, suburban and Grade B segments will continue to languish with levels of demand well below trend.  ‘A fully fledged and sustained recovery in demand across Western Europe and North America will not materialise until there is real and consistent jobs growth in office using sectors,’ it adds.
 
It also predicts that overall office vacancy rates will gradually trend downwards during 2011. In Europe and the US, new office deliveries are near historic lows and commencements are few and far between. ‘This dynamic will intensify in 2011, leading to increasing shortages of Grade A space. Most markets are still without speculative development finance and although injections of funding have been seen in London, they have been focused on trophy tower schemes. A supply gap is likely to emerge in many markets, with refurbishment and green retrofits a logical strategy to exploit the lack of new build. The market will increasingly polarise, with shortages of Grade A space and rising volumes of vacant secondary space,’ it says.
 
By contrast, Asia Pacific will reach the peak of its development cycle in 2011 with a record additional 6.8 million square metres of office space to be delivered.  ‘Nonetheless, strong corporate occupier demand will absorb much of the additional space and, in most markets, vacancy rates will not rise significantly. The exceptions will be some Indian and Chinese cities, and to a lesser extent Singapore, where large supply pipelines will force up vacancy rates. In markets such as Hong Kong, Tokyo and Sydney, limited supply combined with strengthening demand should see vacancies trend downwards,’ it concludes.