Temporary deceleration in global recovery: 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 per cent in the first quarter 2012 compared with the same period of last year. 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 productd, 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 that 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, the report is optimistic that full-year global real estate investment volumes will remain at similar levels to 2011 at around US$400 billion (Bt12.430 trillion). The greatest uplift is expected in the Americas, where volumes could be 10-15 per cent higher than in 2011.

In the first quarter 2012, global office leasing volumes have also fallen by about a fifth on the first quarter of last-year 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 centres 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. 

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 per cent growth in the first quarter of this year, against 0.8 per cent in the fourth quarter of last year. Rental growth fell in nearly a third of recorded markets in the first quarter 2012 – the weakest rental uplift since the first quarter 2010.

Rental growth was strongest in the Americas at 1.6 per cent quarter on quarter. This compares to 0.2 per cent in Asia Pacific. European rents slid on a quarter on quarter basis for the first time since the fourth quarter 2009, with a decline of -0.3 per cent. 

Commenting on the slowing overall rental growth, Jeremy Kelly, director of Global Research and author of the Global Market Perspective report at Jones Lang LaSalle, said that 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 per cent in the first quarter of 2012 compared to a year ago and 11 per cent higher when compared to the bottom of the market at the end of 2009. The global office-vacancy rate now stands at 13.4 per cent, 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 the Asia-Pacific. Despite the ongoing pressures on consumers in Europe, its prime retail and warehouse markets have proved resilient. In the United States, improving business and buyer 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.