RICS Survey: Real Estate Feels the Heat Worldwide

Real estate markets in most of the developed world are decidedly feeling the pinch of the economic malaise that started last year, according to the RICS Global Commercial Property Survey for the second quarter of 2008. Emerging markets, however, pose a more mixed picture. RICS — Royal Institution of Chartered Surveyors — members worldwide submitted office, industrial and retail property data for their respective markets, which was then analyzed on a global scale for the second quarter of 2008, in comparison to Q1 2008 and 2007 data. All together, a total of 410 responses were received. Among other trends, the survey noted a deterioration in occupier activity and increased vacancies across the developed world in second quarter, with some emerging markets also losing steam. Tenant demand fell at a faster pace in the developed world in the second quarter than the first. Moreover, rental expectations were mostly negative across North America and developed Asia, primarily as a result of weaker United States and Japanese economies respectively. Rental expectations remain positive across Australasia and other emerging markets, except for retail sectors of emerging Europe, where rents stagnated in Q208. “Commercial office rents are falling from historic highs, but have not yet fallen far enough to lure tenants that do not have to move due to expirations or other compelling business reasons,” noted Joseph Thanhauser of New York-based Byrnam Wood L.L.C. in his response to the survey — which CPN obtained exclusively, along with the other comments in this article. “It will be interesting to see how landlords cope with rents that fall below the level needed to produce a positive return on the high prices paid at the recent market peak.” Even previously strong US markets, such as Washington, D.C., seem to be a little wobbly these days. “Turbulence in the national economy and unprecedented levels of new construction have shifted dynamics in the Washington, D.C., office market, resulting in uneven demand and rising vacancy rates,” explained Scott Homa of Jones Lang LaSalle Inc.’s Washington D.C. office. “Rental terms are shifting in favor of tenants, and many are choosing to lock in today’s favorable economics long-term. With the gridlock created by the current political cycle threatening to produce additional headwinds, further volatility may continue through the first part of 2009.” Transaction volumes and capital values in the developed world also plummeted, as the commercial property market suffered under financial liquidity constraints, with the worst hit areas being North America, Australasia, Western Europe and to a lesser degree developed Asia. Office, industrial and retail sectors all suffered, with the retail market the most depressed area. “The investment market has declined in terms of sales by about 70 percent, due to a mismatch between the expectations of sellers and those of the buyers,” said David Houston of New Jersey-based Colliers Houston & Co.