Global property investment market recovery to continue in 2011 but occupier markets will drive performance

9 Mar, 2011, Prague

Global investment is expected to increase by 5-10% in 2011, hitting €485 bn
Czech and Slovak investment volumes are set to increase by over 200% in 2011, the strongest growth in Central Europe.
North America and emerging markets to lead, with investment in Latin America and Eastern Europe forecast to rise by over 40% this year, second tier not just gateway cities to benefit

Global property investment markets are expected to continue recovering this year, according to Cushman & Wakefield’s International Investment Atlas 2011. A rising level of investment activity will include a broader focus on emerging and second tier markets not just the core gateway cities which were the winners in 2010. The report forecasts that an increasing focus on the occupier will characterise the market this year, with rent and income growth to take over from yield compression in driving performance.

The report, which monitors investment flows in commercial property in 56 countries, reveals that global investment volumes jumped 42% to €430 bn in 2010. Dealing volumes are still only around 50% of their peak but in some markets they are setting fresh highs – notably emerging markets in Asia and Latin America. Yields fell in most areas last year, as higher demand and limited supply impacted. The global average fell 21bp to 7.6% and a further fall averaging 30bp is forecast for 2011.

“In the Central European region, pricing will see a similar increase to that seen in Western Europe during 2010 with yields expected to fall by approximately 50 basis points during the year,” says James Chapman, head of Capital Markets at Cushman & Wakefield Czech and Slovakia.

Asia held the top spot as the leading region for investment – accounting for more than half of all global activity for the second year running - followed by the U.S. in second place and the UK in third. London was the leading global city for investment, followed by Tokyo, New York and Paris.

Greg Vorwaller, Global Head, Capital Markets, Cushman & Wakefield, said, “Countries will continue to develop at varying speeds though and investors need to keep their eyes open to the risks they are taking on. They should look to push diversification back up their agendas: by region, country, sector and currency.”

Occupier trends

The global occupier market started to rally in 2010 and rents rose by 2%. The recovery has been polarised between prime and secondary and has also seen a new tier of ‘ultra prime’, reflecting the stronger demand for the very best core properties.

“In Central Europe, the investor demand is still very much focussed on the prime assets where leasing activity has remained strong throughout the crisis. However, the definition of prime is expected to become focussed on location and ability to re-lease at any time in the future rather than over-reliance on existing lease length,” according to James Chapman.

Leasing volumes are likely to increase further in 2011, with a focus on the most effective property and markets in all sectors. A shortage of new development and falling Grade A vacancy in Europe and North America will result in a return of rental growth. However, overall high vacancy and cost consciousness will keep rental growth down, with the report forecasting an average of around 3-5%.

EMEA

EMEA investment rose nearly 50% in 2010 to €120 bn with Central & Eastern Europe up 60%. Investor demand picked up late last year after a slow summer period due to sovereign debt worries. Demand has focused on the most liquid markets, with the UK, Germany, France and Sweden seeing most activity and aggressive bidding on core assets. However, as yields in these markets have fallen, some investors have begun to look at other areas such as Poland, Russia and Turkey.

“International investors will have a much larger share of the market in Czech Republic in 2011. Volume and size of deals will increase significantly as we return to a more functional and liquid market,” says James Chapman.

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