by Shane Henson — June 17, 2013—Office property values continued to improve worldwide, rising 0.9 percent during the first quarter of 2013, while global office rents were stable for the period, according to the Global Office Indices MarketView (Q1 2013) recently released by CBRE Group Inc., a global commercial real estate services and investment firm.
“Office property’s appreciation during the quarter accentuates the strong risk-adjusted returns offered by commercial real estate. The availability of such returns, in contrast to lower-yielding investment alternatives, continues to create intense competition for prime assets,” said Dr. Raymond Torto, CBRE global chief economist. “Limited supply and keen demand for prime space in the best locations have supported global office rent levels even in a global environment still constrained by chronic economic headwinds. As economic and property fundamentals continue to recover steadily the outlook for rents is for stability or, over time, moderate growth.”
According to CBRE, global office capital markets are outshining the global leasing markets due to several dynamics, including the migration of capital from other asset classes to commercial real estate seeking attractive risk-adjusted returns in a low interest rate environment.
The Americas Office Capital Value Index (dominated by the U.S. region) had the strongest performance of all regional indices, growing 1.5 percent in the first quarter of 2013 and 5.9 percent year-over-year. While demand for prime property in U.S. gateway markets (such as New York, Washington, DC and San Francisco) remains robust, given the aggressive pricing for such properties, investors have reportedly been more willing to invest in secondary markets such as Seattle, Houston, Dallas, Austin and Denver, which offer relatively higher yields than the core markets. While this shift is small and has yet to materially impact cap rates and pricing trends for assets in non-gateway markets, the initial movement in capital is worth noting, says CBRE.
CBRE also found that markets with exposure to the defense and government sector have exhibited softer leasing activity, while those with links to the high-tech and energy sectors, such as San Francisco and Dallas, are bright spots. Positive factors for a continued yet modest Americas recovery include the U.S. housing rebound, a commercial construction cycle near its trough, and expected gradual employment gains, says CBRE.
