by Shane Henson — August 3, 2011—In spite of the recent economic “soft patch,” most commercial property markets around the world remain robust, finds the Q2 2011 RICS Global Commercial Property Survey.
The survey, published by the Royal Institution of Chartered Surveyors (RICS), is a quarterly guide to the developing trends in commercial property investment and occupier markets around the world. Providing a snapshot of market sentiment, the current edition details market conditions for the second quarter of 2011 based on information collected from leading international real estate organizations, local firms and other property professionals.
The report indicates that the majority of countries surveyed witnessed positive growth in occupier and investment demand as well as in development starts during Q2 2011 despite further increases in energy costs. In addition, the survey paints an optimistic picture for the next quarter, with the majority of countries reporting positive rental and capital value expectations and more than three-quarters of respondents also expecting investment demand to grow.
Key findings include:
- Despite first-quarter optimism, the latest survey suggests that the commercial property market recovery in the United States may already be encountering significant headwinds. While still positive, the rate of growth in investment demand fell in Q2 2011, and development starts continue to slide, although slightly more slowly. Most significantly, rental expectations, which had turned positive in Q1 2011, have once again drifted back into negative territory, with agents reporting a net balance score of -11. That said, capital value expectations are still positive. If the disappointing trend in employment data, visible in recent payrolls numbers, is sustained, the renewed softening in the occupier market could become more entrenched, and at some point this could seep into market sentiment on the investment side of the market.
- The recent move by the European Central Bank to raise interest rates will likely further widen the already large gap between the performance of commercial property markets in core (Austria, Belgium, France, Germany, Italy, the Netherlands, Scandinavia, Switzerland and the U.K.) and peripheral Europe (Greece, the Republic of Ireland, Portugal and Spain). While countries in the former continue to report generally positive numbers—Germany being a particularly bright spot—the latter group is struggling with the ongoing sovereign debt crisis and weak economic growth; this is very visibly being reflected in their troubled commercial real estate markets, notes the report.
- The U.K. commercial property market remained fairly flat in Q2 2011, reflecting the country’s picture of mixed economic growth. Occupier demand remains positive as does available space, but both posted relatively modest increases. Investment demand was also broadly flat. Agents expect further declines in both rents and capital value for Q3 2011, albeit at slowing rates. In spite of the gloomy national picture, however, London’s commercial property market remains robust.
- Q2 2011 economic data suggests that China’s economy is beginning to slow. This moderation has not yet flowed through to the country’s commercial property market however, which continues to post very high figures across the board.
- The commercial real estate market in France was a little steadier in Q2 after the recent impressive performance with capital value expectations just edging into negative territory (-6) for the first time since Q4 2009. After a strong Q1 2011, development starts contracted with agents reporting a net balance score of -5.
- The commercial property market in Germany continues to shine although expectations for the rate of growth in the coming quarter have moderated slightly. Occupier demand remained positive in Q2 2011, as did development starts. Investment demand also maintained its positive trend, but a little less so as the net balance score fell from +60 to +36.
- The adoption of a more restrictive monetary policy does appear to be having an impact on property in India. While still positive, occupier demand fell from a net balance score of +39 in Q1 2011 to +8. Development starts saw an even more dramatic fall in the rate of growth, moving from +31 to +2 and investment demand moved into negative territory for the first time since Q3 2009.
- According to the survey, Russia saw a sharp rise in development starts in Q2 2011 (from +11 to +44), which reflects strong occupier demand combined with a lack of good quality space. This imbalance, in turn, has led to a particularly positive outlook for rental expectations for Q3 2011 as the economy heads towards 5 percent growth this year. Meanwhile, capital value expectations remain very firm. Investment demand also continues to grow strongly and has now risen for seven consecutive quarters.
- The recent move by the European Central Bank to raise interest rates will likely further widen the already large gap between the performance of commercial property markets in core (Austria, Belgium, France, Germany, Italy, the Netherlands, Scandinavia, Switzerland and the U.K.) and peripheral Europe (Greece, the Republic of Ireland, Portugal and Spain). While countries in the former continue to report generally positive numbers—Germany being a particularly bright spot—the latter group is struggling with the ongoing sovereign debt crisis and weak economic growth; this is very visibly being reflected in their troubled commercial real estate markets, notes the report.
