The latest RICS Monitor shows a pick-up in commercial real estate sentiment across the globe during the first quarter of 2014. In Europe, investment sentiment rebounded in a number of hard hit euro area markets, while Russia experienced a sharp reversal.
The results for Russia highlight an important decline across both the occupier and investment markets, suggesting confidence has been undermined by geopolitical tensions and the ongoing slowdown in economic activity, with the risk of recession now looming.
Across the Euro area, a degree of divergence appears to be emerging as the recovery in commercial property gains traction in some member states, while the progress in others stalls. Sentiment remains particularly downbeat throughout France and the Netherlands, despite both of these countries formerly exiting recession during the latter part of 2013.
By way of contrast, a significant improvement is now visible in Ireland, Spain and Portugal. In fact, investment transaction expectations are now higher in these three markets than in any other countries in the survey. Going forward, this is anticipated to translate into a sharp rise in transactions.
Moreover, the brighter outlook is not simply limited to the investment side. With unemployment falling (albeit from very elevated levels), occupier demand is rising. Although for Spain and Portugal rents are expected to remain broadly stable in the near term, respondents’ twelve month view suggests that rents will rise as the year progresses.
Significantly, in Ireland, both the three and twelve month rental expectations indicators are firmly entrenched in positive territory. Alongside this, the performance of the UK and Germany remains particularly strong, in keeping with recent results and macro data.
The situation in Cyprus, however, remains muted.
“The end of Q1 2014, found Cyprus at the one year mark from the decisions of the Eurogroup on March 15 and 27 to ‘bail-in’ the depositors of two of the largest banks, to close down Laiki Bank, and to impose capital restrictions,” said Jennifer Petrides, MRICS, Member of RICS Cyprus said.
“Despite the slowdown in economic activity and the prevailing economic conditions, the sentiment remains downbeat with a glimmer of hope pursuant to the whispers of a possible resolution to the political problem and the prospects that oil and gas exploration can bring to the island. Given the economic conditions, there is a lack of transactions by local buyers, whilst there seems to be increased interest from foreign investors,” she explained.
According to the RICS Cyprus Property Price Index Q4, 2013, values of retail properties across Cyprus fell by an average of 3.2%, whilst those of offices and warehouses fell by 1.4% and 0.7% respectively. Additionally, on a quarterly basis rental values decreased by 3.0% for retail units, 1.4% for warehouses, and 1.6% for offices.
Outside Europe, the UAE and Japan are once again the best performers of the RICS global report, with very positive readings and healthy rental and capital value gains expected during the course of 2014. Upbeat results were also returned from contributors from the US, New Zealand and Singapore real estate markets.
In China, headline activity in the occupier market appears to have turned relatively flat, while progress on the investment side is still seeing a modest uptick.
Figures in Brazil continue to deteriorate, with rents and capital values expected to decline as moderating growth and higher interest rates take their toll on the real estate market.
“The Q1 RICS Global Commercial Report Monitor highlights the more widespread sense of optimism in the G7 occupier and investment markets versus the BRICs,” said RICS Chief Economist, Simon Rubinsohn.
“At the country level, the best performing markets during Q1 were the UAE and Japan, while the weakest were Brazil and Russia. Significantly, some of the hardest hit countries by the global financial crisis, the Republic of Ireland and Spain, are now seeing a recovery in sentiment.”
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