Confidence in the real estate sector is improving around the world, but most notably in EU markets, where investors’ demand is growing, according to property professionals responding to the latest RICS Global Commercial Property Monitor.
During the third quarter of 2016, investment demand for commercial property has been particularly strong in a number of European cities, including Munich, Frankfurt, Berlin, Madrid and Budapest, supported by good economic conditions and benefiting from the actions of the European Central Bank, which has been injecting a large amount of liquidity into the economy. Capital values are expected to remain robust across the EU in the coming twelve months.
Looking at the occupier side, RICS indicators shows the best results in Hungary, with occupier demand growing in the office, industrial and retail sectors for the fourth consecutive quarter. RICS anticipates rents in this country will be pushed higher in the coming months, especially across prime assets.
Strong activity in the occupier market and rental growth is also expected during the year ahead in Ireland, Germany, Spain, as well as in Bulgaria, Romania and France.
In Switzerland, demand from both domestic and foreign investors was flat over Q3 at the all-sector level, almost mirroring the trend reported in the previous quarter
Impact of Brexit
In the UK and especially in London, where sentiment dipped in the immediate aftermath of the EU referendum, the market appeared to have settled down during Q3 and expectations point to little change in the short term. However, a large number of respondents interviewed across Europe have seen evidence of firms looking to relocate some parts of their business away from the UK, in response to the Brexit vote. Over 30% of respondents in Poland, Germany and Ireland have already received enquiries from companies to relocate abroad since the vote in June, and at a lower scale also respondents in Spain, The Netherlands and France. Expectations about seeing some new activity due to relocation of businesses over the next two years were particularly high in the cities of Berlin and Frankfurt.
In the rest of the world, sentiment is also very positive in New Zealand and in India. However, the negative market outlook across certain parts of Asia and the Middle East, reflect the challenging macro backdrop. Respondents from these regions believe conditions in the real estate market are, at present, consistent with the downturn phase of the cycle.
In Russia and Brazil, however, which have both seen confidence deteriorate significantly over the past two years with their economies slipping into deep recessions, contributors are increasingly of the view that the market is bottoming out and sentiment is showing signs of picking up. In Russia, rents are expected to hold steady in the coming year.
Looking at the value of commercial real estate across the world, the monitor shows that property remains particularly cheap in cities like Athens and Lisbon, while New York, Tokyo, Zurich, Geneva, Brussels, Munich, Toronto and Paris are considered as expensive or very expensive. Moscow is now seen as broadly offering fair value.
