Mixed Outlook for Commercial Property Markets
In keeping with the mixed overall economic picture around the world, the commercial property sector reflects somewhat varied sentiment across global investor and occupier markets.
Feedback from Portugal, Ireland and Japan is particularly upbeat, while China, Russia and Brazil are prime examples of weakness among emerging markets.
This emerged from the Global Commercial Property Monitor for the third-quarter (Q3) of 2015. The survey tracks the sentiment of our members working in real estate in 29 global markets and is released quarterly as a guide to the market outlook.
The data is a useful guide for governments, investors and other property professionals on where the commercial real estate markets are headed.
The picture in Ireland and Portugal
Elevated confidence is no surprise in Ireland considering the strong economic momentum where gross domestic product (GDP) rose by around 5% in 2014, while the sustained recovery in Portugal over the past 18 months is supporting the outlook for real estate.
In addition, respondents in both countries report that access to credit has consistently improved over the past few quarters, on the back of ongoing monetary policy easing by the European Central Bank.
The view from Japan
In Japan, economic trends are volatile but, in the commercial real estate sector, two developments seem to be driving sentiment: unemployment has fallen to below 3.5% (pushing vacancy rates down) and the Bank of Japan (BoJ) continues to inject liquidity into the financial system.
Accordingly, commercial property in these three markets are expected to post significant gains in value and rents over the next twelve months. Likewise, solid value and rental increases are also expected in Hungary, Spain, the United Kingdom, New Zealand and the United States.
New data on how our members perceive what stage of the property cycle their local market is currently at, builds a stronger picture of the commercial property sector.
Emerging market weakness
In China, demand from buyers has fallen for three consecutive quarters. Also occupier demand contracted at the fastest quarterly pace since 2008 as the industrial, retail and office sectors each experienced a decline.
Weakness in China has had a knock-on effect on other parts of Asia. Singapore, Hong Kong and Indonesia all displayed negative readings for both the RICS Investment Sentiment Index (ISI)* and the RICS Occupier Sentiment Index (OSI)**.
In Russia and Brazil the outlook is somewhat gloomy with each country feeling the damaging impact of ongoing recessions, compounded by the renewed weakness in oil and commodity prices during Q3.
The International Monetary Fund (IMF) recently downgraded its GDP forecasts for both countries and now anticipates output will continue to fall through 2016, whereas it had previously pencilled in a modest recovery to begin next year.
Perceptions of property cycle peaks
In an attempt to build a stronger picture of the global commercial property sector, we asked respondents their perceptions on what stage of the property cycle their local market is currently at. 43% of respondents in Germany felt that market conditions are reaching the top of the cycle. 40% of respondents in New Zealand and 38% in Hong Kong also perceive the market is nearing its peak.
On the flipside, there are still several areas in which members feel market upturn has some way to go, most notably Portugal, Ireland, Spain and Italy.
These markets may therefore represent the greatest opportunities for investors at present.
