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JLL: Measured recovery of global real estate markets to continue
May 07, 2012
The current state of real estate markets suggests a temporary deceleration in the on-going global real estate market recovery, according to Jones Lang LaSalle's latest Global Market Perspective report.
With a brighter outlook ahead for the global economy however, sentiment is recovering and full year 2012 commercial real estate volumes are expected to match the robust levels seen in 2011.
Total global investment and leasing volumes fell by around 20% in Q1 2012 compared to Q1 2011. This slip can be attributed to a lagged response to heightened investor and corporate occupier caution during the latter part of 2011.
A lack of available investment product, shortages of high quality space for lease, combined with an absence of large transactions have also suppressed volumes. Arthur de Haast, Head of the International Capital Group at Jones Lang LaSalle said: "Despite the apparent volatility in recorded investment volumes, a strong deals pipeline persists. The weight of capital dedicated to real estate is solid, with further inflows expected from other asset classes. "Confidence amongst real estate investors is returning and, while investors remain somewhat cautious, most are still executing their strategies, albeit with longer transaction times. On this basis, we are optimistic that full year global real estate investment volumes will remain at similar levels to 2011 at around US $400 billion. The greatest uplift is expected in the Americas, where volumes could be 10-15% higher than in 2011."
A mixed leasing picture
In Q1 2012, global office leasing volumes have also fallen by about a fifth on Q1 2011 levels. Corporate occupiers continue to strengthen their balance sheets and reduce operating costs, and they remain selective in their transactional activity.
Soft leasing volumes in the major financial centers such as New York and London are being offset by robust corporate occupier demand in emerging markets such as Beijing and Sao Paulo. This suggests that, on balance, global office leasing volumes will be slightly lower over the full year compared to 2011.
Office rental growth weakest since beginning of 2010
Against a back-drop of lower leasing volumes, the Jones Lang LaSalle Global Office Index that tracks rental performance of prime office space in 90 major markets eased to 0.5% growth in Q1 2012, against 0.8% in Q4 2011. Rental growth fell in nearly a third of recorded markets in Q1 2012 - the weakest rental uplift since Q1 2010.
Rental growth was strongest in the Americas at 1.6% quarter on quarter. This compares to 0.2% in Asia Pacific. European rents slid on a quarter on quarter basis for the first time since Q4 2009, with a decline of -0.3%. Growth was strongest in the BRICS economies, in South East Asia and cities with strong connections to technology, energy and commodities sectors. Beijing and Jakarta saw 49% year on year rental growth, Sao Paulo 30% and Moscow 20%.
Commenting on the slowing overall rental growth, Jeremy Kelly, Director - Global Research and author of the Global Market Perspective report at Jones Lang LaSalle said: "Despite a slowdown in rental growth over the last quarter, most major prime office markets are expected to register rental uplift in 2012, and some markets such as Beijing, Sao Paulo, Toronto and San Francisco could see double-digit growth. "At a global level, prime rents are up 5% in Q1 2012 compared to a year ago and 11% higher when compared to the bottom of the market at the end of 2009. The global office vacancy rate now stands at 13.4%, the lowest for more than two years. With limited high-quality space in the pipeline, supply will remain tight."
Solid consumer activity continues to support retail and warehouse markets in Asia Pacific. Despite the ongoing pressures on consumers in Europe, its prime retail and warehouse markets have proved resilient. In the US, improving business and consumer sentiment is helping to drive a steady recovery in warehouse leasing demand, which in turn will support rental growth in 2012.
International retailers are boosting leasing demand in Greater China as they diversify into rapidly growing secondary and tertiary cities. This trend will continue to evolve over the next decade, as China's top cities offer commercial real estate opportunities supported by consumer growth and economic transformation. For further analysis see Jones Lang LaSalle's recent China50 report.
Commenting on the overall outlook for 2012, Jeremy Kelly added: "Investors remain cautious, and rightly so after economic trepidation throughout the second half of 2011. Resilient capital values and prime yields are holding firm which is indicative of continued strong interest in high quality core well-let assets. Provided we don't see any further economic surprises, the outlook for global property remains on course for measured recovery throughout the remainder of 2012."