What you need to know in key markets around the globe
Looming Defaults in European Governments Cause Concern
LONDON—Some experts have breathed life
into predictions of a possible double-dip
recession, and similar to 2009, many economists are again unsure what the future
holds in 2011, based on various global factors. The European Central Bank provided
$136 billion to keep countries such as the
PIIGS solvent; the euro fell, too, but didn’t
go below $1.20; and the US Dow Jones
dropped below 10,000 points again.
But what does it mean for commercial
real estate? Recovery is still expected, but at
a slow pace. Lending will continue to stay
tight, interest rates will remain low and
investment will likely seesaw between the
US and other international markets as
those with money try to predict the safest or
most beneficial markets.
Lee Menifee, director for global strat-
egy for CB Richard Ellis, says he never
accounted for a fast recovery, the ‘V’ that
some economists predicted. “We see it as
two tracks: a resurgence is strong in
emerging economies, such as Southeast
Asia, but developed economies such as
those in Europe are going to see much
more muted growth,” he said.
Employment Woes Could Derail Global Recovery
The global property markets at the prime end have shown some
improvement in response to the gradual healing of both the
world economy and the credit markets. In the US, the story
remains one of steady improvement, increasing availability of
capital and a continuing flow of deals to market.
Commercial property markets in the Americas have passed
their greatest point of decline, but are
currently looking for much greater clarity
on several fronts. Investment markets
than they were at
a general lack of available supply in the
most targeted market segments continues
to frustrate investors that have raised capi-
tal but remain in extended holding pat-
terns in their pursuit of attractive opportunities.
Overall sales transaction volume in the US is running at a
pace 45% to 50% above comparable 2009 levels. As deal pipelines continue to grow, the pace is expected to accelerate in the
second half of the year. Full-year 2010 transaction volumes may
increase by two-thirds over 2009’s very depressed level. Yields
have compressed for core product in first-tier markets, leading
to increases in capital values, and in distressed asset sales, there
are modest signs of growth as some lenders lose patience with
the most severely delinquent and overleveraged borrowers.
By Steve Collins
Leasing markets are still generally working their way toward
absolute market bottom and continue to trail the capital markets into the recovery phase. In the leading gateway markets, a
noticeable rental bounce off of cyclical lows may be developing
for prime product. However, rents in the majority of markets
are likely to come under continued slight to modest downward
pressure as the recovery proves fitful.
The outlook for real estate fundamentals into 2011 will be
largely dependent on the trajectory of employment growth, particularly in the US. Should the private sector begin producing
broad-based and consistently strong job gains, then all major
sectors will benefit. What is certain is that low interest rates, at
least into early 2011, will be of short-term benefit to the capital
markets, as investor interest deepens and begins to widen, and
the lending markets continue to loosen. Nevertheless, there
remains a tremendous amount of distressed property that casts
a shadow over much of the industry and poses risks depending
on how lender behavior evolves with respect to overleveraged
property on their books. Finally, without corresponding
improvements in the underlying demand for space, the investment markets for top-tier real estate run the risk of having
rebounded too far, too fast.
Steve Collins is the Washington, DC-based managing director of Jones
Lang LaSalle’s International Capital Group. He may be contacted at
firstname.lastname@example.org. The views expressed here are the author’s own.