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Recovery common theme of Cushman & Wakefields Global Economic Pulse Outlook 2010 reports |
Thursday 11 February 2010 Cushman & Wakefield, Inc. has issued its outlook editions of its global Economic Pulse report series showing a significant improvement over last year in economic indicators -- with positive impacts expected for business and commercial real estate -- in regions around the world, despite continuing concerns about high unemployment, fragile recovery conditions and credit availability in some markets. The annual outlooks paint an increasingly positive 2010 picture for economies and commercial real estate markets in Asia, Europe and the Americas. |
A brief summary of each regional Economic Pulse report is outlined below.
THE AMERICAS
U.S.
For the U.S., the stabilization of labor markets, growth in temporary employment services, and recent rises in personal income, sales and production, all point to an economy that has shifted from contraction to expansion during the second half of 2009, most likely in the fourth quarter.
In the U.S., the strength and durability of the recovery will depend on demand growth and the reaction of businesses to that demand growth, in addition to improvements in the availability of pricing and credit. According to the report, U.S. job growth could potentially increase payrolls on the order of 1.5 million jobs for the year which would still be 5 million jobs off the 2007 peak.
Full recovery for commercial real estate, on a national basis, however, will be delayed, due to the long-term nature of the transactions in the industry. Vacancy is likely to rise in most cities during 2010, even as employment increases. The outlooks for the rest of the Americas are mixed, but generally cautiously optimistic. Canada faces many of the same challenges as the US, but the outlooks for Mexico and Brazil are somewhat brighter.
CANADA
Consumer confidence has returned to the Canadian marketplace despite a stall in job growth in December 2009, when the overall economy shed 2600 jobs. Employment has stabilized, but remains down since the October 2008 peak. So, while the overall unemployment rate remains flat at 8.5%, the economy is expected to perform much better in 2010, with moderate growth.
Canadian office markets will continue to see weak demand in the near term, and vacancy rates in most markets will rise, particularly in the first half of 2010. Still, some markets are experiencing unexpected demand resilience, with a slowing of sublet space being returned to market. Central Calgary and Toronto will continue to see available space rise faster than other major markets, which is attributable to the completion of new office towers, not weak demand fundamentals
MEXICO
This year, the Mexican economy is projected to grow much faster than in 2009 with current estimates for growth at about 4.0% to 5.0% based in part on government and private sector funding for bicentennial celebrations. Overall, there is likely to be more investment activity in 2010 than in 2009. The decline in the value of the peso by nearly 30% in the past year against the dollar and even more against other currencies has helped make Mexico an attractive investment location.
This peso decline and a general global recovery should help the hospitality sector and the industrial sector which makes Mexico an attractive location for manufacturing and transshipment reinforcing Mexico’s position as an important production location. The combination of a recovering US economy and the cheaper peso is expected to boost the Mexican real estate market in 2010.
BRAZIL
From a general business perspective, Brazil is seen as a top destination for foreign investment and appears to be poised for an outstanding year. Commercial real estate remains a major area of opportunity in the main CBDs, but given the extremely high foreign interest to invest, as well as strong interest from local players, cap rates are starting to compress and may rapidly compress through 2010.
The main risk is for Class A properties in Sao Paolo, where a large amount of new construction will enter the market in the next three years, which could translate into higher vacancies.
Industrial real estate is still relatively untapped; there is still substantial pent-up demand for space that will likely grow in the next few years. The industrial market still allows unleveraged returns above 13%. The retail market, particularly for large formats, shopping malls, seems to be crowded by new players, but it only represents 30% of the total market. Smaller formats as well as strip malls and open malls are still relatively untapped.
EUROPE:
Cushman & Wakefield’s report concludes that while the recovery will be slow and uneven in Europe, it will be sustained and many of the concerns raised including rising inflation and interest rates, an ending of fiscal stimuli, and approaching asset price bubbles, will not materialize in 2010. Despite the slow recovery being projected, a double-dip recession is not anticipated for European economies.
There is a significant disparity between the stages of recovery that each country has reached. For example, many countries have already seen two or more quarters of growth, yet others have seen little to no rebound at all. Nevertheless, all countries in Europe have seen at least some improvement in sentiment since their low-points earlier last year, particularly in the manufacturing sector, reflecting the positive impact of a rise in global trade and an end to inventory liquidation.
While 2009 began with widespread pessimism and a real threat to the stability of the financial system, the mood at the start of 2010 is far more upbeat. The consensus outlook for growth in both Western and Central & Eastern Europe has improved steadily, with the economies of all but a small minority expected to see positive growth in 2010.
From a commercial real estate perspective, occupiers in Europe clearly enjoy more market power today than landlords in general, but this may not last as grade A supply and demand are likely to come into balance quite rapidly in competitive markets. Prime space rents are expected to reach their floor around mid-year and rising confidence and liquidity as well as favorable interest rates should ensure that prime yields across Europe come under more pressure to fall in the months ahead.
A mix of increasing but still relatively attractive pricing, improving confidence, low interest rates and a search for productivity gains or new market share, should lead to a range of opportunities for focused and well-funded businesses – suggesting potential for increased activity in European investment and occupational real estate markets as the year progresses.
ASIA PACIFIC:
With most of the Asian economies, particularly China, firmly on the path to recovery from the slowdown sparked by the global financial crisis, it is not hard to strike an optimistic note when discussing prospects for Asia-Pacific in 2010. Consensus opinion calls for economies in the Asia-Pacific region to grow by a very healthy 5% in 2010. In comparison, other major regions around the world are forecasted to grow at around half of that or much less. This forecasted outperformance becomes more pronounced when we exclude Japan. Asia, excluding Japan, underpinned by the two large and rapidly developing economies of India and China, is expected to grow at a close to 8% rate in 2010.
Despite the relative health of Asia-Pacific economies, they are not decoupled from the slower growing developed economies. Trade is volatile and can therefore increase fluctuations in GDP growth. However, while trade dependence with developed economies is a key factor, Cushman & Wakefield’s report anticipates economic growth in Asia will fall in line with the 2010 consensus report.
From a commercial real estate perspective, foreign investment coupled with the growth of mainland Chinese and Indian firms will increase demand for commercial space throughout the region. With their fortunes on the rise, many local firms are expected to lead a wave of positive business expansion in Asia-Pacific.
Yields will likely stay flat or decrease as increased buyer demand and improved seller sentiment push prices upwards at around the same rate or higher than underlying rent fundamentals. Sustained demand for office and industrial buildings is expected to blunt any downward trend in rents over the decade, especially in the developing economies.
Source: Cushman & Wakefield |
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