Commercial real estate will rebound this year, says CBRE

PETALING JAYA: Economies are rebounding and so will commercial real estate, but not in the same gusto, according to CB Richard Ellis Inc (CBRE).

In its Global Market View February 2010 research note, CBRE said overall, the global commercial real estate market is becoming better – slowly, it said.

There are pockets of solid recovery in leasing and investment activity, but there are also concerns about the sustainability of these improvements.

“Of particular note is that investment markets are ahead of leasing market across all global regions. Yield on prime, core properties have compressed, but positive leading indicators are not as definitive,” it added.

Although China’s economy and real estate market commands most of the headlines, it is the Pacific region that seems best poised to succeed in 2010.

“The drivers of the recovery in the Pacific region are broad-based, but paramount are the trading links to the quickly rebounding economies of central Asia,” it said.

Economic growth in the major countries of the Pacific is now starting to accelerate. One of the most encouraging early indicators is employment.

The unemployment rate in Australia dropped to 5.6% in December 2009 from 3Q’s 5.7%. The unemployment rate also appears to have peaked in New Zealand at 6.5%.

According to CBRE, yields have been compressed in each property sector, volume is up and “the sweetest spot” in the investment cycle may have already past. Leasing at least stabilised at 4Q2009.

Asia, too, had a good 4Q2009 in terms of investments, which saw significant improvements over the first nine months of the year. Most of the activity was in China, Hong Kong and Taiwan.

Asian real estate investment markets posted a strong recovery in 2H2009 after witnessing a difficult start to the year. Investment turnover bottomed out in 1Q but improved thereafter as investor confidence gradually returned.

CBRE said this was underpinned by a strong rebound in the equity markets, the persistence of low financing costs and a stabilising trend in price levels across key markets.

Direct real estate investments in Asia jumped 56% year-on-year in 2H2009 to an estimated US$25 billion (RM85.12 billion). However, overall transaction volume was still 22% lower in 2009 as compared with the previous year, according to CBRE data. The leasing market, particularly office and industrial, was more subdued, while retail leasing saw a noticeable recovery in the latter part of 2009.

Europe also saw investment yields come in ahead of leasing fundamentals, but only for prime properties. Transaction volume was up significantly compared with earlier quarters of 2009.

Other markets are continuing their downward trend, although the decline is easing. Take up was solid in 4Q, driven by several factors, including some pent-up demand and bargain hunting.

“In the US we again see cap rate on prime properties coming in a little while secondary and tertiary properties and markets see no improvements. Leasing markets are improving at a slower pace,” CBRE said.