Global office property markets are at their strongest for two years with 2011 expected to see the best real estate trading and performance since 2007, according to a new report.
Barring further financial shocks, analysts at Jones Lang LaSalle are expecting investment volumes to rise by a further 20 to 25% in 2011, which follows 50% growth in 2010.
In its latest Global Market Perspectives report it says that corporate occupiers are again flexing their muscles and improvements in the leasing markets are helping to build investor confidence.
‘Corporate cash balances and earnings are strong and major companies are poised to start spending again, just at the time when new supply in both North America and Europe is at a cyclical low,’ it says.
‘We believe the balance of risks in 2011 will be mainly to the upside as global business optimism grows; a sentiment very much in evidence from political and business leaders at last week's annual meeting of the World Economic Forum in Davos,’ it adds.
It points out that a recovery is well underway in most major real estate markets across the globe. Leasing volumes are at their highest level for two years, vacancy rates are beginning to stabilise or fall across the board, and rental growth is now a feature of many prime markets.
‘Improving market fundamentals are further boosting investor activity, leading to double digit capital value growth on prime assets in many top tier markets. The momentum for increased investment trades is building, encouraging investors to assume greater risk to achieve their intended returns,’ the report continues.
‘This competition will introduce more liquidity into the sector as the credit markets loosen and the lending environment improves as banks successfully refinance their loans. Positive business sentiment and stronger corporate balance sheets are boosting leasing market activity,’ it adds.
The report shows that net office absorption has more than doubled in Asia Pacific’s Tier I markets over the past year; leasing volumes in Europe are at their highest level since 2007; and, in the US, positive absorption has once again returned.
Across Asia Pacific, MNCs are becoming more visible and are driving large requirements in markets such as Greater China, Singapore and India. The Asian domestic corporate sector is also coming to the fore and competing for Grade A space, particularly in India and China.
It points out that the recent fourth quarter 2010 Hudson Report, a quarterly survey of employer hiring intentions, indicates that relatively strong jobs growth should continue in the region. Consistent with this trend, regional net absorption is expected to increase further in 2011.
In Europe, overall take-up for 2010 reached 10.6 million square metres, an increase of a third on 2009 and 5% ahead of the 10 year average, a level few expected at the start of the year. Expansion demand is an increasing feature of Germany, the Nordics and Central and Eastern Europe, but elsewhere corporate occupiers remain cautious with lease events and consolidation being the key drivers.
‘Although business sentiment in Europe is at its highest level since 2007, fiscal tightening threatens to undermine confidence and could moderate demand. Office take up across Europe is forecast to stabilise at around 10 million square metres in 2011,’ it adds.
The overall office market in the US is still in the process of bottoming out. Corporate demand continues to gradually return, with three consecutive quarters of net absorption gains. New York and Washington DC are the leading markets; however the nascent recovery is now broadening. Across the majority of office markets in Latin America, strong economic growth is translating into healthy office demand. In Brazil’s major office markets, tenant demand is outstripping new supply, resulting in robust rental growth in São Paulo and Rio de Janeiro.
It also points out that new office supply is trending down, which will help to reduce vacancy rates in 2011. Office construction has virtually dried up in North America and office completions in Europe this year will be at their lowest level since 1998. In contrast, most of Asia Pacific is approaching the peak of its development cycle in 2011, with developers emboldened by a strong regional economy and improving occupancy levels for quality office space, though supply should start to moderate in 2012.
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