Global commercial property takes a slide

30 July 2008

Transaction volumes and capital values plummeted as the commercial property market suffered under financial liquidity constraints, says the RICS Global Commercial Property Survey, published this week. Tenant demand fell at a faster pace in the developed world in the second quarter.

17 percent more Chartered Surveyors reported a fall than a rise in tenant demand across the globe as the effect of the credit crunch deepened. The worst hit areas were North America, Australasia, western Europe and, to a lesser degree developed Asia. In Western Europe, the net balance of surveyors reporting a fall in tenant demand fell to -27 percent from -22 in Q1, while in Australasia and North America it fell to -35.5 and -36 respectively. All sectors suffered with the retail market the most depressed area and the office sector dropping to a further low. Capital values declined at a faster pace in the developed world with the pace of growth almost halving in developing markets.

Yields have been rising across most global markets and at a faster pace in Q2. Many buyers have been re-pricing risk further and bidding at lower values as economic signals have sent alarm bells ringing, raising the possibility of tenant defaults. A rise in yields was recorded in emerging markets for the first time in the survey’s history as aggressive inflation fighting in some locations has impacted upon commercial property pricing.

Growth in purchasing activity continued its downward spiral with all regions outside Latin America either stagnating or declining. The weakest investment markets were seen in North America, Australasia and Western Europe. Indeed, of the more than 50 countries surveyed, 7 of the 10 worst performing countries are located in Western Europe with the most negative sentiment towards prices for Q3 expected in the Republic of Ireland and Spain. Outside Western Europe, Hungary, New Zealand and South Africa displayed the most negative sentiment towards future prices with the US positioned only one place above the bottom 10.

Closer to home, the UK continues to fall foul of credit crunch restrictions, with available floor space on the rise across all sectors and rental expectations among the most negative in Europe outside of France. The number of Investment bidders per property has declined at a faster pace over the past quarter while capital values are expected to continue their decent into 2009.

RICS Senior Economist, Oliver Gilmartin said: “The pace of upward yield shift gathered momentum across many markets in the second quarter as renewed fears over a prolonged economic slowdown has raised risk premiums and the real possibility of increasing tenant default. The outlook for rents has been pared back across many markets as well as some emerging markets where the battle against inflation has taken centre stage. Significantly, inducements are on the rise in every global region outside of Latin America a trend which has historically provided a lead indicator for slowing rental advance. Markets exposed to the housing and consumer slowdowns are unsurprisingly displaying the weakest sentiment on downgrades to economic growth with the retail sector the least favoured in every region outside Emerging Asia and Africa & Middle East.”

RICS’ Global Commercial Property Survey is a quarterly guide to the developing trends in the commercial property investment and occupier market. This edition details market conditions for the second quarter of 2008 based on information collected from leading international real estate organisations and individual local firms.

Survey questionnaires were sent to real estate organisations in June 2008, with responses received up until the 14th of July 2008. Respondents were asked to compare conditions over the latest three months with the previous three months. A total of 410 responses were received. Responses have been amalgamated across the three real estate sub-sectors of offices, retail and industrial property at a city level, to form diffusion indices for the commercial market as a whole.