Special Features
Japan and UAE lead global commercial property recovery
Commercial property markets most impacted by the global economic crisis are showing signs of continuing improvement, whilst loss of momentum is evident in some of those markets that weathered it relatively well, according to the latest RICS Global Commercial Property Survey. Heavily hit markets of the UAE and Japan are showing the biggest rise in occupier demand and investment activity; with the US also demonstrating signs of improvement.The shift into recovery by these countries marks the start of a new phase in the economic recovery and global liquidity conditions. Part of this is related to domestic factors, involving some combination of fundamental economic adjustment in many of the crisis hit economies and reflationary policy stimulus.
Having emerged from a three year downturn in the second half of 2012, the UAE is one of the survey’s standout performers in Q3, with both the OSI* and ISI** readings indicating the strongest market momentum since early 2008. The UAE market has been supported by the geopolitical situation through its position as a regional safe haven and a gradual economic recovery on the back of a pick up in bank lending. This has been accompanied by a significant drop in the supply of distressed assets and increasing evidence of developers initiating new projects.
Following this positive trend, the Japanese commercial property sentiment is resurgent, thanks to ambitious official stimulus and reflation measures (’abenomics’), including the goal of 2% inflation in 2 years’ time and a doubling of the monetary base. There has been a gradual upturn in the OSI, with the ISI performing particularly strongly, reflecting a favourable response from investors to the government’s new economic strategy.
In the US, the market is benefiting from a firmer tone to market sentiment brushing aside uncertainty surrounding the debt ceiling debate and the back up in funding costs as a result of Fed policy (’tapering’ talk as well as forward guidance).
However, uncertainty over the winding down of the US Federal Reserve’s open ended quantitative easing program (tapering) has drawn US dollar liquidity out of many emerging markets, sparking a sell-off in asset prices of the more vulnerable markets.
Meanwhile, in Canada, the survey data gives the impression that market momentum in both the occupier and investment spheres remains generally positive.
Trends for the BRICS markets are split between those economies reliant on foreign capital (Brazil, India and South Africa) and those that are not (China and Russia).
China and Russia continue to run current account surpluses and hence are not reliant on external capital flows. As a result these BRICS economies have retained stable currencies and their commercial property markets are faring reasonably well.
By way of contrast, those BRICS countries that are running current account deficits - Brazil, India and South Africa - are proving rather more vulnerable. Their respective currencies have sold off sharply and sentiment towards commercial property has taken a knock, with the OSI and ISI measures falling sharply in Brazil and India, while turning less positive in South Africa.
The European picture remains mixed in spite of the generally better news flows emanating from the region. Occupier and investment sentiment remains negative in the ’core’ Dutch and French markets, albeit a lot less so than earlier on in the year, with Italy continuing to struggle.
Nevertheless a "European thaw" is visible as Ireland and Spain are seeing improvement in the commercial property market; with a positive turning point in Spain for the first time in the post crisis era and the German market remains strong.
RICS Chief Economist, Simon Rubinsohn: "The prospect of the Fed taper at some point in the not too distant future has understandably led real estate investors to become rather more discriminating particularly amongst emerging markets. This is likely to put additional pressure on some of those governments to put in place policies that broadly support sustainable growth.
"Meanwhile the big splurge in public spending in Japan is not only leading to a more positive view on the macro outlook but also increasing the attractions of commercial property investment. Interestingly, the latest RICS results also show the rebound in the UAE is continuing apace especially in the prime segment. Other markets that remain well underpinned by fundamentals include the US, New Zealand and Russia. Signs of recovery are becoming increasingly visible in the data for Ireland while we are also seeing, somewhat surprisingly, some slightly more positive indicators in Spain."
