Richard Gwilliam (pictured), Head of Property Research at PRUPIM offers his outlook for global real estate…
Europe – Growth is expected to remain weak into 2013. The weakness of the economy is continuing to affect property markets, with rents largely staying flat in core countries, whilst selected peripheral economies record further falls. However, in the retail sector, rental growth is being recorded in some markets, largely restricted to the most prime locations in core markets.
Further yield compression has been seen in some of the German and Nordic core markets on prime property, as investors continue to look for safe havens. Nevertheless, with yields approaching their pre-credit crunch lows, it is unlikely that further significant yield compression will be seen in the short term. Forecasts suggest that the region, as a whole, will see a slight capital decline over the next year.
Asia Pacific – Reflecting continued economic uncertainty, property investors operating in the region remain broadly cautious, focusing on defensive assets of prime quality. However, the widening pricing gaps between sellers and buyers are likely to hamper investment activity. Nevertheless, lower borrowing costs and accommodative monetary policies are expected to support investment sentiment.
Weakening demand continues to weigh on rental growth prospects for office markets in Singapore, Seoul and Hong Kong. In Japan, Grade A offices and modern logistics markets continue to stabilise, although risks remain biased to the downside. In Australia, leasing sentiment remains weak
North America – US commercial property fundamentals have continued to improve slowly as positive net absorption combines with historic lows of new supply; sectorally, apartments have experienced the strongest recovery. Whilst investors and lenders have so far focused on core “safe” assets, increasingly keen pricing is shifting interest towards higher-yielding secondary assets.
Although Canada’s strong economic recovery looks to be losing a little steam, commercial property fundamentals are healthy. Vacancy rates for all property types are starting to stabilise, but at levels capable of generating some rental growth. Prime yields have returned to 2007 lows, leaving little space for further short-term yield compression.