Commercial Property Investment Climate in 2011

According to a whole host of reports the commercial property investment climate is fair with the potential for continued showers in some areas. That is of course a metaphor for the fact that commercial property markets around the world are generally in recovery, with some markets doing extremely well, but others still struggling.

Over the last 8 months there has been a mass of positive data, reports of increasing commercial property investment yields, investment volumes increasing massively, capital values increasing in some markets, income returns increasing in others, both increasing in others still, and a generally positive picture almost across the board.

In the first 3-5 months the positive data was almost completely dominated by the US and Asian markets, but in recent months Europe has been taking centre stage, with Eastern Europe performing particularly well.

In the latest release of its Global Market Perspective report, Jones Lang La Salle reported a 44% year on year growth in global investment volumes in the first quarter of 2011. The report highlighted an incredible 125% growth in investment volumes in the Americas, with Europe seeing the second biggest growth at 29%.

Recent reports by CB Richard Ellis show how Europe has caught up and even overtaken America in the second quarter.

In a report into the first quarter, CBRE reported similar data to that of Jones Lang La Salle, with a 22.9% increase in investment volumes, and the Americas dominant with a 77% increase in investment volumes. But in a subsequent document CBRE reported an incredible 180% year on year increase in investment volumes in Eastern Europe.

The reports from the share indices have shown a similar trend in commercial property investment funds, and international real estate investment trusts, with American trusts dominant throughout 2010, and European trusts catching up and taking over in 2011.

According to the FTSE EPRA/Nareit index European REITs returned 7.89% in the first half of this year, while American REITs returned 0.76% during the same period.

There are "signs of things picking up in Europe on a fundamental level," said John Lutzius, a managing director in London with Green Street Advisors. He said that he is expecting a continued improvement in both rents and vacancy rates.

Another trend was the popularity of commercial property investments in the UK at the start of the year filtering out as the UK market recovered rapidly. Recent reports have also indicated that the commercial property recovery is continuing despite the recent weakening in the global economy.

The Global Commercial Property Survey Q2 2011 by the Royal Institute of Chartered Surveyors reported:

"We would have expected our survey results to reflect some impact of the recent economic 'soft patch', but interestingly, it looks as though commercial property markets around the world remain strong, regardless."

It is hardly surprising. After 3 years of almost constant volatility, we are now seeing the signs of a sustainable recovery fuelled on a solid basis rather than government cash-sacks. This is fuelling investor confidence to go out there and start grabbing the glut of distressed assets and commercial investment property on the global market.

What's more, with global governments in as much debt as they are and people living longer, the need to fund our own pensions is only going to increase the popularity of investing in commercial property.

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