By Ronald R. Pressman
Volatile US Investment Climate
Sends Players to Emerging Markets
AT THE BEGINNING OF 2007, THE GLOBAL
commercial real estate industry was awash in money,
capitalization rates were tightly compressed and mega-deals were making headlines. Performance of US and
international markets seemed increasingly correlated.
Today, the mood in the US has changed markedly, as
volatility is making investors uncertain.
Even before recent domestic market events, we saw
increased activity in Asia and Europe. Investors are seeking
portfolio diversification and higher returns in high-growth,
emerging markets such as Poland, Singapore and Mexico.
These countries are showing remarkable strength and vitality and warrant closer attention. While specific local factors
are at play, each is experiencing in excess of 5% GDP
growth from businesses seeking greater efficiency for
Poland, Singapore and Mexico offer high-
yield investment opportunities through
rental growth and value appreciation.
regional manufacturing, distribution and operations. All
three countries offer high-yield investment opportunities
through rental growth and value appreciation.
Poland’s economy is based in part on its cost advantage
in labor, and the real estate market is a beneficiary. Like several of its Central European neighbors, Poland’s economy
is on a high-growth track and is expected to continue to
expand faster than the economies of Western Europe.
With its large and growing population, Poland is seeing
urban regeneration, resulting in the construction and
expansion of residential units and retail malls. Additionally,
the Warsaw market has one of the lowest densities of office
space per worker in Europe. Office yields are still relatively
high and annual investment volumes in Poland and other
parts of Central Europe are likely to triple from US$15 billion
to more than US$45 billion over the next three to five years,
based on predictions by Jones Lang LaSalle.
A different situation prevails in Asia, where China and
India have received the lion’s share of attention from
investors, international companies and business media.
While we believe these markets have long-term potential,
many investors have found it difficult to generate strong
profits or even gain a foothold due to uncertainties stemming from an evolving system of legal and property protections, as well as changing regulations for foreign investment
and repatriation of capital.
Meanwhile, Singapore’s real estate market is quietly
prospering, with annual transaction volume reaching an
estimated US$7 billion in 2007. Having fallen out of favor in
recent years as interest shifted to other Asian markets,
Singapore is a classic turnaround story. This city-state has
reinvented itself as an attractive and efficient center for the
Asian operations of international businesses. As with other
Asian economies, Singapore has been the beneficiary of
strong GDP growth, decreasing unemployment, stable
inflations and low interest rates. But an educated and skilled
workforce concentrated in a relatively small geographic
area provides a competitive advantage.
Being rediscovered by the international trading and
financial community has bolstered Singapore’s real estate
values and rental rates. Robust economic growth is driving
demand for office space and we expect will lead to significant residential development opportunities.
Another overlooked market with tremendous potential is
Mexico, which is less dependent on the US economy than
in the past. Many international businesses from Europe,
Asia and the US are finding Mexico desirable as a cost-effective center for their operations in North America and
Latin America. This has caused a surge of new development of office, warehouse and industrial properties. The
economy has also benefited greatly from free trade agreements, which have led to a rapid expansion of the middle
class in Mexico. A larger population of new consumers with
disposable income is the reason behind the construction of
retail properties across the country. It has also resulted in
strong residential growth in several major cities.
Markets with a stable but growing economic environment, an established rule of law, above-average market
fundamentals and returns and ever-shrinking country risk
profiles offer the best opportunities.
The views expressed in this column are those of the author
and not Real Estate Media or its publications.
Ronald R. Pressman is president and CEO of GE Real Estate in
Norwalk, CT. He may be contacted at Ron.Pressman@ge.com.
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