Global commercial real estate markets weather economic uncertainties

Prime office rents rose for the 8th consecutive quarter in 4Q11 and vacany is edging down to the lowest point.

According to Jones Lang LaSalle’s new suite of global forecasting reports, while economic uncertainty still affects the main commercial real estate centres around the world, global real estate markets are showing steady improvements.

The firm’s Global Office Index reveals the fourth quarter 2011 marked the eighth consecutive quarter where prime office rents have risen, up a further 0.8 percent over the previous quarter and representing six percent growth over the fourth quarter of 2010. Global vacancy is edging down to the lowest point for the past two years at 13.6 percent.

“The majority of global leasing markets are holding firm, and many are showing remarkable resilience especially among the BRIC countries, as well as robust showings from Canada, Australia, Germany and the Nordics,” said Jeremy Kelly, Director in Jones Lang LaSalle’s Global Research team and author of the firm’s Global Market Perspective. “While leasing markets in the major financial centres are softening, the limited supply pipeline should ensure that they do not move significantly out of balance.”

Jones Lang LaSalle’s Global Office Index tracks the rental performance of prime office space across 81 major markets in the Americas, Asia Pacific and Europe. Key findings of the Jones Lang LaSalle’s Fourth Quarter 2011

Global Office Index include:
• Rental growth rose the highest in the Americas at 1.2% in fourth quarter over third quarter 2011, as landlord leverage gradually increased in the majority of markets.
• Asia Pacific markets have seen rental growth decelerating from 2.5% in third quarter to just 0.9% in fourth quarter as corporate demand began to slow.
• Despite the negative economic backdrop, Europe’s office markets showed some improvement over fourth quarter with growth picking up to 0.4% from a virtual halt in third quarter 2011.
• Leasing volumes will be steady in 2012 with positive rental growth expected in most major office markets with Beijing, Toronto and San Francisco topping the charts with potential double-digit increases.

Investors, already wise to the resilient fundamentals in the commercial real estate sector, continue to choose real estate given attractive investment status compared with alternative investments.

The Global Market Perspective shows robust capital market investment volumes in the fourth quarter 2011. A total of US$411 billion was transacted in full-year 2011, 28 percent up on 2010. 2012 transaction levels are set to match 2011, with upside potential in the Americas.

Arthur de Haast, Lead Director of the International Capital Group at Jones Lang LaSalle added: “The markets are witnessing a ‘flight- to-quality’, traditional in times of uncertainty, as investors pivot towards core assets in those major cities with strong economic fundamentals and/or with ‘safe-haven’ characteristics. While there is capital available for commercial real estate, debt financing around the global will be more constrained in 2012. We’re seeing capital appreciation slowing as yields flatten, and spreads between core and secondary assets are widening.”

While commercial real estate expectations for 2012 have been tempered, barring significant financial system shocks, commercial real estate investment and leasing volumes are likely to be maintained at 2011 levels.