Latin America and Asia lead global commercial property growth

Sentiment towards global commercial real estate continues to improve with Latin America and Asia leading the way while Japan and the peripheral euro area remain near the bottom of the pile, according to a new survey published today (Tuesday February 15).

Agents in approximately three quarters of the countries represented in the fourth quarter Global Commercial Property Survey from the Royal Institute of Chartered Surveyors reported greater demand from tenants for commercial property in the final three months of last year.

The quarterly guide to the developing trends in commercial property investment and occupier markets in close to 50 countries around the world also found that expectations for both rents and capital values on balance continue to improve.

Rental expectations for the first quarter of 2011 are most positive in Latin and Central America and Asia. The responses from Peru are particularly upbeat but, amongst the major markets, Hong Kong, China, Singapore and Brazil lead the way. Russia also scored well on the likely trend in rents.

The contrast to this is provided by Greece, Spain, the Republic of Ireland and Japan where the net balance of respondents continue to foresee further rental declines.

The responses for the investment market are broadly similar, with capital value expectations most favourable in Asia and Latin America amongst the major markets. The peripheral euro area and Japan are firmly ensconced at the foot of the table.

It says that the resilience of the Chinese and Hong Kong property markets suggests that the impact of the well publicised measures taken by the Chinese government to try and cool developments in the real estate sector has been limited. In China, both tenant demand and rental expectations posted strongly positive net balance scores, +57 and +67, respectively, while in Hong Kong, rental expectations rose to +88 from +70 last quarter.

Meanwhile, there is increasing evidence to suggest that the US commercial property market also seems to be improving. Capital expectations picked up this quarter, showing a positive net balance of +15. This, in turn, seems to be driving a positive swing in US investor sentiment. Investment transaction activity rose quarter over quarter (from +28 to +36) as did the number of investment bidders per property. Rental expectations, while still in negative territory, were less so than previously.

‘Sentiment seems to be improving across much of the global commercial property market. Solid growth in Asia, Latin America and parts of Eastern Europe is providing significant support for the real estate sector. Indeed, a key reason for central banks raising interest rates in these parts of the world is to head off concerns over the re-emergence of another asset price bubble. Even so, our suspicion is that these markets will see the strongest gains in capital values over the course of 2011,’ said Simon Rubinsohn, RICS chief economist.

The report also says that although fiscal retrenchment may result in a modest slowdown in Brazil’s GDP in 2011, agents report both firm rental expectations and a positive outlook for capital values. Tenant demand remains strong while the need to rely on inducements to let space has fallen sharply compared with the previous quarter.

Indeed, the availability of property to let has dropped quite noticeably in recent periods. However, the real estate sector will have to cope with further interest rate increase over the course of the year.

A strong economic climate reflected in rising levels of consumer confidence falling unemployment and a buoyant export sector helped push rental expectations into positive territory in the fourth quarter of 2010, the first time since the third quarter of 2008. Tenant demand also increased substantially from +29 to +42 while expected capital values rose sharply from +19 to +45.

Despite the prospect of further interest rates hikes during the first half of 2011, India’s growth profile, helped by a strong manufacturing sector, remains sound. Agents report tenant demand is continuing to increase and that this is being reflected in a rising trend in rents even if the net balance reading on rental expectations slipped back a little in the latest survey. Meanwhile, sentiment in the investment market appears to be stabilising after strong price gains in previous quarters.

It also points out that falling unemployment, strong business confidence and expectations for solid growth in 2011, helped to drive a strong set of results for Russia’s commercial property market in the fourth quarter of 2010. Rental expectations increased dramatically from net a balance score of +38 to +64. Tenant demand also increased.

As fiscal austerity stifles growth, sovereign debt concerns and high unemployment continue to plague Portugal and Spain. As a result, the commercial property story remains gloomy. In both countries, tenant demand and rental expectations continued to fall sharply in the last three months of 2010 while capital value expectations remain negative.