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KUALA LUMPUR: The worldwide office real estate market continues to recover as indicated by CB Richard Ellis Group Inc's (CBRE) latest Global Office Rent Index and Global Office Capital Value Index.
The CBRE Global Office Rent Index has expanded for the second quarter in a row, rising 4.3% year-on-year in 1Q11 following a rise of 2.4% in 4Q10. The CBRE Global Office Capital Value Index expanded 12% y-o-y in 1Q11 and has been in recovery mode for a year now.
"The fact that capital values have rebounded ahead of rents, reflects several factors, including the deeper integration of commercial real estate into the global capital markets, risk aversion that has driven investors into core assets, attractive pricing of real estate relative to other assets and the availability of favourable financing in the US," said Dr Raymond Torto, CBRE's global chief economist in a recent statement.
CBRE Global Office Rent Index
The Index shows that office rental growth is taking hold globally. The 1Q11 increase was powered by Asia-Pacific, which showed an 11.3% y-o-y change. The Europe, the Middle East and Africa (EMEA) region also showed positive rental increases at 2.5%. EMEA had earlier experienced a more moderate descent from its peak. Across the Americas there was essentially no change in rent levels y-o-y.
The index has been trending higher globally for four quarters, following seven quarters of declines. The Rent Index fell a cumulative total of 17% from its peak at the middle of 2008. At its peak, the Rent Index was 119 and today after some recovery it is at 104. Seen in this light, the recent gains are a sign of improving global office market health, but certainly not a return to previous rent levels.
While economic conditions vary globally, most economies are improving, albeit slowly. With little in the way of more supply of office space coming into the market due to new construction, particularly in EMEA and the Americas, the CBRE Global Office Rent Index is expected to continue rebounding modestly through 2011, even in the face of continued economic headwinds, such as the sovereign debt crisis.
Asia-Pacific is seeing growth of about 5% or greater in its office inventory, so some of these positive rent changes may be tempered in coming quarters, said CBRE.
CBRE Global Office Capital Value Index
While the leasing market is just starting to recover, the CBRE Global Office Capital Value Index has been increasing for the past four quarters. The y-o-y change accelerated from 2% in 2Q10 to 6% in 3Q10 to 10% in 4Q10 and 12% in 1Q11.
The upturn in capital values is again led by the recovery in values in the Asia-Pacific region. The EMEA region has seen more muted positive changes while the Americas recovery had been tepid prior to 4Q10.
"Clearly, the capital markets are anticipating higher future leasing rents in the Americas, reflecting what some call a disconnect between capital values and rent performance for the past two quarters. It could also be characterised as an expectation for improved property fundamentals," said Torto.
The CBRE Office Capital Value Index for the Americas has shown two strong quarters in 4Q10 and 1Q11 with a 6% and 9% y-o-y change. In contrast, the CBRE Office Rent Index for the Americas was negative in 4Q10 and at essentially zero change in 1Q11.
The CBRE indices comprise data from 123 cities around the world. The base period for the indices is 1Q01.
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