Despite Hiccups, Global Markets Show Positive Moves

Despite today's news from Greece, a number of studies and reports have closely monitored the world economy from a capital perspective, and results have been mixed. But, on closer inspection, real estate investment has been surprisingly resilient.

In light of today’s news that Greece is now calling for a referendum on the debt deal brokered just a week ago – a fact that has sent ripples through the entire worldwide economy – it’s important to keep in mind what’s been happening on an international scale of late.

A number of studies and reports have closely monitored the world economy from a capital perspective, and results have been mixed. But with a year that’s seen an earthquake in Japan that disrupted international trade, the abovementioned Greek debt crisis and a credit downgrade for the United States, real estate investment has been surprisingly resilient.

The first report, from Cushman & Wakefield Sonnenblick Goldman, was the most somber. Using data from Real Capital Analytics, the services firm found that the volume of commercial real estate investment has been on the decline in both Asia and in Europe – the latter most likely due to debt uncertainty. It also noted that sales volume, in total, has been declining domestically in the last three months. But not all is lost: Pricing for trophy properties, specifically in key markets, has been pushing back to pre-recession levels. While there has been talk that those asking prices are “getting ahead of the market,” recent sales in gateway markets show that investors are still very comfortable with paying a premium for the best assets they can get.

Deloitte’s quarterly report, “Trends in Real Estate Private Equity,” was much more bullish on the domestic scene. “Foreign investments have helped to revive the U.S. transaction market,” the firm noted, moving on to show that – according to DTZ Research – an estimated $329 billion in capital was raised “to directly target global real estate in 2011, with 33.7 percent ($110 billion) of capital funneled to the Americas.”

And that foreign investment will likely be a key component in the recovery for U.S. commercial real estate. During 2011, foreign investment, primarily from Asia-Pacific, has focused on high-quality properties in major cities and financial districts within the United States – clearly agreeing with the consensus from Cushman. But Deloitte sees possibilities beyond those trophy properties, noting that “there are many opportunities for future investment in tertiary markets that have not been typical focus points for foreign investment.” What remains to be seen, however, are the continued unforeseeable changes and uncertainties, such as the unfolding crisis in Europe, and how those circumstances may slow recovery momentum into 2012.

But not all opportunities lie within the boundaries of the Americas. Simon Rubinsohn, chief economist for RICS, summarized the situation thusly: “The global real estate market flourishes when economic conditions are stable and strong,” he said. “Confidence has definitely taken a knock. That said, there remain key areas of resilience – China, Brazil and Russia – and we have seen positive momentum in several other countries as well, Japan most notably.”

His comments came on the heels of RICS’ Global Commercial Property Survey, which was released today. While Deloitte found that investment dollars still exist for global real estate, RICS found that the volume of transactions have been falling. In the third quarter of 2011, a greater number of countries indicated fewer investment inquiries and development starts than in the previous quarter, and available commercial space increased for those same countries. “In addition,” the report added, “negative sentiment colors the global outlook for Q4 2011 with almost two-thirds of countries reporting negative rental and capital value expectations and nearly two-fifths reporting an expected decline in investment demand.”

So while fearful investors may stay on the sidelines, more bold ones may jump into the fray. While it’s still too early to see how the current set of crises will play out, there are positive indicators on the horizon.

“Although we doubt that the developing economies can completely insulate themselves from the challenges facing the West,” Rubinsohn concluded, “our suspicion is they will continue to outperform and this will be reflected in real estate markets.”