Global property markets on the up - investment volumes forecast to reach $478 billion in 2010

3 Mar, 2010, Warsaw

According to Cushman & Wakefield’s 2010 Global Investment Atlas, which monitors investment flows in commercial property in 56 countries, global investment volumes are forecast to rise 30% this year, hitting $478bn (€362bn), led by a reviving US market. The new report, to be launched on 16th March at MIPIM in France, suggests that this figure is likely to be even higher if the economic recovery remains on track. In 2009, global investment volumes fell 23% to $365bn (€270bn), their lowest since 2003. However as markets started to recover and global liquidity improved, investment volumes ended the year on a much stronger note – rising 104% between the first and second halves of the year.

The upturn was led by Asia Pacific and most notably China, with a 39% increase in investment on 2008. China is now the largest real estate investment market in the world, with the next most dynamic recovery market, the UK, up to second and the USA down to third place. (If apartment sales are included in this figure the USA would take second place.)

Yields stabilised in most areas later last year as higher investor demand and limited supply impacted. The global average fell 20 basis points in the second half of 2009 to 7.8% and a further fall of 25-50bp is forecast for 2010.

Occupier trends
Global rents fell 5.7%, with the worst declines coming early in 2009. Nonetheless, cautious occupiers and rising supply point to a further 5% fall in H1 2010 before prime values stabilise later this year. Across all sectors global rents fell at an annual rate of 9.2% in the first six months but this slowed to just a 2.2% pa decline in the second half, with Asian Pacific retail, notably China, and Asian Pacific and Latin American offices, leading the stabilisation. With an uncertain economic recovery however, a demand-led return of rental growth is not yet in prospect although it is increasingly clear that not all markets will follow the same trend.

Top Investment Targets
With investment growing 143% last year, it is China which is now the active property investment market in the world. Aside from the rise of China as a global market, the increasing dominance of Asia Pacific overall has been notable in the 2009 results. Eight of the world’s top 20 investment markets are now Asian Pacific and a number rose up the rankings last year, with Hong Kong, Taiwan and New Zealand seeing deal volumes rise while Australia and South Korea saw a much more modest decline than the global average.

Many investors are focussing on core, more liquid markets such as the UK, France and Germany in Europe or eyeing Canada now and perhaps the USA later this year. However opportunities in today’s market are apparent in all regions. Brazil for example has come out of the recession looking if anything a stronger candidate for global investors and other emerging markets such as Poland and Turkey could be more highly regarded. Asia offers a range of mature and emerging market possibilities meanwhile, such as Australian and Singapore offices or Chinese retail.

Outlook for 2010
“While challenges clearly remain and a double-dip can not be ruled out, a higher risk appetite among financiers and investors will continue to fire the market.” commented David Hutchings. “With the recovery now backed by local and international players, we anticipate higher levels of activity and a total deal volume up 30% to $478bn (€362bn) this year.. With investor demand for prime space running ahead of supply, yield falls will continue even without any signs of renewed rental growth. Overall, limited finance may hold back re-pricing in some areas but we still anticipate a 25-50bp fall in yields globally across all sectors, with Asia again leading the correction. Rents however are likely to drift lower and whilst they will end the year relatively stable, we anticipate a 5% fall globally, led by office property in most but not all markets.”

USA
One of the strongest increases in activity is expected in the USA, at around 50%. Janice Stanton, Senior managing director of capital markets, Cushman & Wakefield in US comments, “The debt overhang and “job-free” recovery mean that other than for the best assets, downward pressure remains on prices. However, this may create attractive buying opportunities in the second half as distress and refinancing needs emerge on the market. With many investors sat on a lot of cash after the recapitalisations, equity raises and inward investment flows of last year, a strong turnaround in activity looks likely. Indeed, if the economy stays on track, it wouldn’t be surprising to see our forecast beaten”. According to Frank Liantonio, "The US market remains a Tale of Two Cities, divided between institutional sellers, who were on the sidelines in 2009, and distressed sellers (special servicers and bank REO groups), who have been reluctant to bring product to market and lock in losses. As 2010 unfolds activity in both sectors should improve as pricing for well leased, core product purchased before the market peak benefits from large pools of frustrated capital, and distressed sellers begin to deal with a mounting volume of properties."

Asia Pacific
“Asia Pacific saw its global market share increase to 59% in 2009, 80% higher than in 2008, and while we are forecasting slower growth in 2010, of around 20%, globally it will remain in top spot” commented Donald Han. “The two largest markets in Asia Pacific are China and Japan. China will continue to see vibrant investment activity, despite recent government measures to cool down the property market. Japan is looking increasingly compelling with a relatively high spread between yield and finance cost and with huge investment grade opportunities particularly distressed assets selling at below replacement cost. We are expecting opportunistic buying activity this year.”

Middle East
Commenting on the Middle Eastern outlook, Mike Atwell, Managing Partner of Cushman & Wakefield in Dubai said, “Despite often still negative headlines, 2009 actually ended with better sentiment among occupiers and investors in a number of our markets and while limited to prime, income producing stock, we can expect more activity and a hardening in yields this year as cash rich funds and private individuals seek out opportunities.”

EMEA
In EMEA as a whole meanwhile, the recovery which started in the UK is spreading west, with investment rising in the final quarter in most areas and yields in key areas falling in early 2010.

“We currently expect volumes to rise 44% to $152bn (€115bn) – on a par with 2004 trading levels” said Michael Rhydderch, head of cross border investment EMEA, “however, while we can easily spot where the demand is coming from, its not getting any easier to find stock, particularly since there have been few distressed sales as the banks continue to take a managed approach to the challenges they face. As a result, investors have got to keep abreast of where market pricing and “value” lie and not get too carried away with the distressed pricing and yields we saw just 6 months ago: by and large, they’ve now gone.”

Wojciech Pisz, Associate from Capital Markets Group of Cushman & Wakefield’s Warsaw office, said, “Polish investment property market shows clear signs of improvement. The main investment driver is the country’s good economic conditions. In addition, leasing market across all sectors, following last year falls, has stabilised, fuelling hope for future growth. Sellers and buyers have accepted new transaction price level, which seems to satisfy both sides. Currently prime yields range between 7% and 8%. The maintenance of positive moods will definitely contribute to the increase of annual investment volume, which may even exceed the level of 2008, i.e. EUR 2bn.”

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