Real Estate Forum - June 2013

NEWS FRONT
Global Markets Move Toward Equilibrium

LONDON—According to a new Global Office Report by Colliers International, rebounding global markets are aiming for a state of economic supply and demand equilibrium, despite challenges in China, the US and Europe. While some markets may still be sluggish, the majority are more stable than they have been in some time.

“Office markets around the world have
survived the challenges of a slowing Chinese
economy, a mixed American recovery and a
European market that is still finding its eco-
nomic footing,” says James Cook, director of
research at Colliers. “Now, we’re experienc-
ing balance on a global level.”
Colliers experts point to several key
trends in 2013 that underscore this search
for equilibrium:

United States and Canada: Strength in the intellectual capital, energy and education sectors will remain the driver of office-using employment growth through this year. Vacancy rates improved to nearly 14% in the first quarter of 2013, dropping for the fifth consecutive quarter. Meanwhile, a strong rebound in the for-sale housing market is poised to benefit US suburban office markets in 2013.

Mexico City: Office development is strong, with 20 new buildings developed in 2012, 54 more under construction in the first quarter of 2013, and a 17% increase in absorption. In the next five years, Mexico City’s office inventory is expected to increase by about 3. 2 million square feet, but with a stable vacancy, the market should have enough absorption to fill the new properties. Beijing: While demand for class A space decreased in the second half of 2012 and absorption also decreased significantly, overall rental rates still grew by nearly 20%. Demand is expected to remain largely stable for the remainder of 2013. Sydney and Melbourne: Domestic investment has doubled since 2011, now making up 78%, and is expected to remain strong. The leasing market remains slow despite tightening vacancy rates, positive absorption and rental growth, with most activity focused on lease renewals and consolidations. In Melbourne, a lack of business confidence has led to a slowdown in demand and tenant commitment. However, Colliers experts expect certainty to return to the market and drive demand in 2014. Mumbai: Office absorption rose through

2012 despite occupier caution, with demand driven by the banking, financial services, insurance and IT industries. Colliers expects healthy demand to continue in 2013 with the Andheri, BKC and Lower Parel submarkets the preferred destination due to the availability of class A space.

Europe: While the threat of a Eurozone break-up has diminished, the European office market continues to operate at a slow pace, with pockets of rental growth in parts of Northern Europe like Germany and the Nordics, and rental weakness across most of Southern Europe and some fringe Central and Eastern markets. In Germany, occupier demand began rising in the first quarter of 2013, while demand in Paris is expected to stabilize this year.

The report also covers South American markets Sao Paulo, Rio de Janeiro, Buenos Aires, Bogota and Lima; Asian markets Beijing, Shanghai, Hong Kong, Tokyo and Seoul; Australian markets Adelaide, Auckland and Wellington; Indonesian markets Singapore, Taipei and Makati; Indian markets Mumbai, Delhi, Bangalore and Chennai; and other European markets—David Phillips

North American Liquidity Tops All Regions

DTZ Research has released its 39th edition of Money into Property. The report analyzes the size and structure of global commercial real estate investment markets, as well as investor and lender sentiment.

The year-over-year changes were substantial: following growth of 8% in 2011, invested stock grew by a more modest 1.5% in 2012 to reach a record level of US $12.4 trillion. Asia Pacific was the only region to post growth in 2012 as its invested stock grew 8% to US $4.2 trillion—the region is now close to surpassing Europe to become the region with the largest stock. In North America, stock fell by 0.5% driven by a fall in the US stock. Following growth in 2011, the stock in Europe fell 2.6% to US $4.4 trillion.

Despite low global growth, the focus on further downside potential has receded over the past year. The macro outlook is more balanced and the recovery is expected to continue. North American invested stock edged down by 0.5% despite 8% growth in both Canada and Mexico. The fall in North American stock has been driven by further deleveraging in the US. The value of outstanding debt in the US fell 2.5% in 2012, which more than offset increases in equity holdings. But, the repercussions of this will be less severe than in Europe.

By John Wickes

Based on its Lender and Investor Survey, DTZ Research maintains that global property market sentiment remains mixed, despite the improving macro outlook. Lenders are more cautious than investors in their annual survey. Most investors feel buying opportunities have returned to normal and that debt availability has improved. DTZ Research believes sentiment has been slow to improve due to inflated expectations. Despite this, things are not as bad as they seem.

North American investment volumes were up 15% in 2012, the strongest of any region. Cross-border volumes have returned to their 2005 level. Volumes might be restricted going forward due to lack of sellers.

All US markets are classified as attractive or very attractive, ahead of Europe and Asia Pacific. In fact, relative value is at the best level in six years, due to lower bond yields and better growth outlook.

North American liquidity tops all other regions. With relative value abundant globally, DTZ thinks investors will look at liquidity more closely. North American markets will be a net beneficiary of this in the future.

(This column originally appeared in slightly different form on GlobeSt.com.)

John Wickes is head of DTZ Research for the Americas in Chicago. He may be contacted at john.wickes@dtz.com. The views expressed in this column are the author’s own.