Despite the unknowns surrounding the debt crisis in Europe and the US, real estate occupiers are not sitting still. Cushman & Wakefield’s Global Economic Pulse presents a mixed forecast for real estate markets in the Americas, Europe and Asia Pacific, but stronger economies in specific markets around the world offer an improved forecast for real estate later in 2012.
“While we have been in the midst of challenging economic times, there is now a growing sense of constrained optimism, and we anticipate the global economy to strengthen during the second half of 2012,” said Glenn Rufrano, President and Chief Executive Officer of Cushman & Wakefield.
High volumes of office leasing activity over the past 12 months have shown that many occupiers are not being deterred by a period of slower growth.
“We have seen strong leasing activity as many organizations recast their real estate portfolios and strategies in preparation for the next expansionary economic cycle,” said Maria Sicola, Executive Managing Director of Research for the Americas at Cushman & Wakefield.
AMERICAS: Better Times Ahead
The entire Americas region experienced a slowdown in 2011 as the European and US debt crises caused businesses and investors to become more cautious, and dramatically slowed the pace of growth in the US – the region’s main driver. However, the underlying fundamentals are pointing to a brighter future in 2012.
“The main drivers of growth – low interest rates, pent-up demand, balance-sheet improvement and healthier labor markets – are all still very much in place,” said Ken McCarthy, Senior Economist and Senior Managing Director of Research for Cushman & Wakefield.
The improving economic environment in the Americas is also expected to lead to healthy leasing fundamentals in the commercial real estate market. US office and industrial markets have been characterized by rising demand and limited supply. Investment sales in the Americas were up 51 percent in 2011, and improving fundamentals coupled with a still-healthy investor appetite for real estate should lead to healthy growth in the region, with activity in the US forecast to increase by 25 percent.
EUROPE: Recovery Delayed, Not Cancelled
The escalation of the sovereign debt and banking crisis hit a European economy already weakened by higher inflation and interest rates. Most of Europe now faces the threat of weaker growth and a credit squeeze. However, the outlook for the region overall is still poised for mildly positive growth by year-end. The first half will remain weak, but better growth is expected later in 2012 as inflation falls and a more stable pattern of global demand emerges.
“While it remains incredibly hard to predict what may happen, the commitment of governments and institutions to resolve the sovereign debt crisis looks increasingly sufficient to keep the Eurozone intact – at least for now,” said David Hutchings, Partner and Head of Cushman & Wakefield’s European Research Group.
Real estate conditions across Europe are far from uniform, with some markets supply-constrained and seeing costs increases, while others are still stabilizing. A focus on sustainability and a need for better or more efficient space has been the catalyst for recent activity, with “change” a bigger driver for European markets than “growth.’ Investors will remain focus on top cities and assets that offer protection from the downside, and as a result yield trends are likely to diverge further, with core markets stable or possibly down, and increases in secondary markets.
ASIA PACIFIC: Slow Growth Ahead But No Recession
The Asia Pacific economy’s dynamism remains one of the bright spots in the challenging global environment. Steady GDP growth, which continued through 2011 on the back of healthy domestic consumption and investments, is expected to slow slightly, but continue in 2012.
“Increasing intra-regional trade, plus continued economic strength among the region’s powerhouses of China, Indonesia and India should support relatively good growth in the Asia Pacific region,” said Sigrid Zialcita, Managing Director of Research for Cushman & Wakefield’s Asia Pacific region.
Real estate market conditions will remain highly segmented across the region, with generally healthy occupier demand supporting positive office absorption, though at a lower rate compared to 2011. Investors will continue to target well-located, stabilized core opportunities that offer stable income profiles in key gateway cities.