The Expert: Remembering the Obvious in Emerging Markets

A stark realization was thrust upon me this week. As Citi Property Investors Research looked at third-quarter property market fundamentals the world over, one fact could not be ignored. While we had been focusing on distress in developed markets in Western Europe and North America, worrying endlessly about faltering mortgage performance and financial layoffs, I had not been appreciating the entire picture. What I had been taking too lightly was the possibility of a dramatic worsening of office fundamentals in the emerging markets.Now, I won’t go so far as to say that I had been ignorant of slowing absorption and the large pipeline of new space coming to market in some of these places. We’ve been tracking that for a while now; and I think we do a very good job of keeping on top of these developments. What I was less sensitive to, however, was the speed with which rents can fall in these thinner, less industrially diverse markets. Within just a few quarters, conditions in some previously hot emerging markets have not only faltered but have done so beyond anything that we had been tracking in Europe or North America.I was even more surprised that I was, in fact, surprised by this. I should have been fully aware that in the same markets that experience hyper rent increases, subsequent mean reversions can happen with similar velocity. After all, I’ve seen this before. In fact, one doesn’t need to look far and wide for examples; I remember seeing it all too well in some of the smaller emerging tech markets right here in the United States at the beginning of the decade.Industrial diversity, size and stability are real and important concepts, not just jargon. The numbers now bear that out.