RICS Global Commercial Property Survey Q3 2012

The European sovereign debt crisis continues to take its toll on the region’s commercial property sector, with the majority of markets recording falling activity and negative expectations. However, the picture did nonetheless marginally improve in Q3, with more countries recording positive results than in the previous quarter of the year, according to the latest RICS Global Commercial Property Survey.

While the overall assessment in Europe remains bleak, the introduction of the European Central Bank’s Outright Monetary Transaction (OMT) programme likely played a role in lifting sentiment.

Globally, the survey shows real estate sentiment remained fragile in the third quarter - particularly in occupier markets - as the global economy faces strong and persistent headwinds. Economic activity in Europe is contracting, while growth in the US remains modest. The Chinese economy has also slowed, and uncertainty about its near-term prospects is greater than was the case some months ago.

In Europe, Russia experienced the strongest occupier and investment activity. Inside the Euro-zone, Germany was the best performer, though rental and capital value expectations have fallen. France, Italy, Greece and Spain saw some of the biggest falls in occupier demand, alongside further increases in available space. This is weighing down on rental expectations. Other European countries such as the Netherlands and Switzerland also appear under pressure.

There are also clear signs that some emerging European countries are seeing confidence begin to fade. After several quarters of positive results, Poland and the Czech Republic are now experiencing weaker readings across most indicators.

Nevertheless, the RICS survey indicates that the number of countries reporting increases in occupier demand has clearly risen, compared to the previous quarter from three to seven, including: Russia, Belgium, Romania, Hungary, Germany, Austria and the Republic of Ireland.

Developments in Europe’s investment market also look better this quarter with eight countries recording increases in investment demand, compared to six previously. Again, Germany and Russia were among the best performers, but they were joined by Ireland, Austria, Poland and the Scandinavian markets.

The sentiment survey highlights the deterioration of the French market, with tenant demand and investment activity now falling at a faster pace than in Greece and Spain. Meanwhile, the Irish commercial property market, after a long period of contraction, is showing signs of a stabilisation in activity, although expectations are still negative.

Commenting on the survey results, Simon Rubinsohn, RICS Chief Economist, said:

“At world level, the most positive trends in occupier markets are to be found in Russia, the UAE, the US and Canada, where demand from tenants is rising and available space is constrained. Demand also remains bullish in Hong Kong, Japan and China. New development is rising in markets with strong demand, but especially so in Brazil, Thailand and Canada.

On the investment side, enquiries were rising in roughly two thirds of the responding countries, suggesting that the recent trend of rising investor appetite has continued. Capital values are expected to rise strongly in Russia, Brazil, Hong Kong and Canada.

Looking forward, RICS is cautiously optimistic that the introduction of the European Central Bank’s outright Monetary Transaction Programme, enabling the ECB to buy unlimited amounts of Euro zone sovereign debt, in conjunction with plans to establish a European banking union, will gradually foster improved risk appetite and greater financial stability across Europe. This should lay the groundwork for an eventual recovery in the region’s economy and commercial property sector in the medium term, but the coming year is likely to remain challenging.”

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About the Survey: Available at www.rics.org/economics, the RICS Global Commercial Property Survey is a quarterly guide to developing trends in the commercial property investment and occupier market. Respondents were asked to compare conditions in Q3 2012 to conditions in Q2 2012.

The results of the Q3 GPS survey have been compiled from 942 responses, at a country level, across the three real estate sub-sectors of offices, retail and industrial property to form a net balance reading for the commercial market as a whole.

Net Balances: Net balance percents, or scores, are calculated by subtracting the numbers of respondents reporting ‘down’ from the number who reported ‘up’.

*The European Central Bank’s Outright Monetary Transaction (OMT) programme: with this programme unveiled in September 2012, the ECB aims to cut the borrowing costs of debt-burdened eurozone members by buying their bonds. However, OMTs will only be carried out in conjunction with European Financial Stability Facility or European Stability Mechanism programmes.