The recovery of the real estate sector in most European markets gain ground with Ireland, Spain and Portugal all seeing more favourable trends in both occupier and investment markets, according to the RICS Global Commercial Property Monitor for the fourth-quarter (Q4) of 2014. Economic pressures in Russia have impacted on confidence.
Momentum seems to be shifting up a gear in some parts of the world, although the conditions vary considerably. The global survey shows how the Japanese commercial property sector continues on an upward trend despite the recession but it’s the United States (US) that shows some of the strongest momentum. Brazil’s results continue to decline while Russia appears to be feeling the effects of a raft of economic pressures. The outlook for India is, however, optimistic going forward.
In Europe, results are somewhat mixed. Indicators are that commercial property in Spain, Portugal, Germany and the United Kingdom (UK) is expected to record solid capital value and rental growth over the next year. In fact, Portugal and Spain registered the sharpest rate of increase in investor demand during Q4. This signals a strong rebound after the harsh impact of the 2008 global financial crisis in both cases.
In France and Italy, however, the occupier markets remain poor, as weak tenant demand is coupled with rising availability of space. Unemployment rates have actually inched up over the past year in both countries and this goes someway to explaining the poor sentiment. The expectation is that near term rents will remain in decline. However, the investment markets are showing some early signs of improvement, with investment enquiries rising substantially in France, and at a more moderate rate in Italy.
In Poland, the economy has so far been resilient in the face of the Russian-Ukrainian crisis, but this is not fully reflected in property market sentiment. The RICS monitor shows that occupier sentiment was relatively unchanged over quarter and remains in negative territory, although investment sentiment moved further into positive territory, albeit not dramatically. Where the mood is positive, this tends to be concentrated at the prime end of the market, in particular retail; the outlook for secondary property is rather more downbeat.
Meanwhile in China, occupier and investor results imply a flat market with growth in supply outweighing that of demand on both sides. This trend is somewhat in line with the general slowdown in the rate of Chinese economic expansion in recent quarters. Despite this, small gains in prices and rents are expected over the coming twelve months, although respondents have been scaling back their projections.
In Brazil, indicators continue to highlight deteriorating market conditions where both occupier and investment demand remain in decline. Subsequently, capital values and rents are projected to fall across the board during the year ahead, although expectations are not quite as negative as in previous surveys. But the medium term outlook is more upbeat, likely a result of recent policy measures signalling the commitment to create a more stable macro environment. As such, respondents are anticipating that commercial property prices and rents will return to growth over the next three years.
A raft of economic pressures in Russia seems to have impacted on confidence there. 54 percent of respondents expressed the view that the depreciation of the Rouble was a threat to business (31 percent stated it was too early to tell). Furthermore, the Russian central bank raised interest rates to 17 percent in December last year, the economy is now contracting, and the huge fall in oil prices is likely to further exacerbate the economic turmoil. Together, these impediments present a challenging set of circumstances for Russia’s commercial property sector, with little respite anticipated in the foreseeable future.
“While sentiment in the BRICS markets is generally more cautious, India is a notable exception to this picture with the enthusiasm for the new government and the recent cut in interest rates helping to support expectations for a strong performance from the country’s real estate sector. The contrast with the recession hit Russian economy could not be starker, with respondents in the latter expecting sharp falls in both rents and capital values through 2015 unless there is some easing in the squeeze on macro conditions,” commented Simon Rubinsohn, RICS Chief Economist.