''Growing Optimism'' in Global Commercial Property Markets

The outlook for global commercial real estate markets appears to be brighter, while there are indications leasing activity is picking up around the world...

The outlook for global commercial real estate markets appears to be brighter, while there are indications leasing activity is picking up around the world. In its Global Economic Pulse report, Cushman & Wakefield described the forecast for commercial property markets as "mixed", but stressed the picture is likely to improve as the year progresses. President and chief executive officer of the firm Glenn Rufrano commented: "There is now a growing sense of constrained optimism, and we anticipate the global economy to strengthen during the second half of 2012."

The Americas region in particular is expected to improve, with the organisation pointing to the strong fundamentals of the commercial real estate sector. Senior economist and senior managing director of research at the company Ken McCarthy stated: "The main drivers of growth - low interest rates, pent-up demand, balance sheet improvement and healthier labour markets - are still very much in place." As a result of the overall improvement of the economic conditions in the region, leasing activity is on the rise, while there is an increasing appetite among buyers for commercial real estate investment opportunities, particularly in the US where the number of investment sales is expected to climb by 25 per cent.

A study published by Jones Lang LaSalle earlier this month supports predictions of a stronger leasing market in the US, with the firm noting there have been very few new developments of offices, resulting in a lack of supply to meet demand for high-quality commercial properties in this sector. According to the organisation, office rents increased by an average of 2.9 per cent in 2011 and landlords reduced improvement allowances for tenants by five per cent in the same timeframe. Vacancy rates also fell, especially in trophy and class A assets, although director of US office research at the organisation John Sikaitis cautioned there is still "a way to go" before vacancy rates reach the low level recorded in 2006.

Europe, meanwhile, presents a "far from uniform" picture, with Cushman & Wakefield highlighting investors' interest in the continent's core markets and asset classes, while secondary locations are considered less attractive. Due to this trend, yields for the most sought-after property are expected to hold steady or even fall, while returns on real estate investments in secondary markets are predicted to increase. Finally, in the Asia-Pacific region the focus will remain on "well-located, stabilised core opportunities that offer stable income profiles in key gateway cities". Although a slowdown in the economic growth in the area is anticipated, this is likely to be minor and will not have a serious impact on the countries in the region, the firm stated.

- Tuesday 27 March 2012

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