Publications

In the first quarter of 2010 commercial real estate markets in many parts of the world showed signs of stabilisation and recovery. 

This European View is an introduction to our more detailed European Retail, Office and Logistics Views.

 

This is a detailed European Retail View for Summer 2010

 

This is a detailed European Office View for Summer 2010

 

This is a detailed European Logistics View for Summer 2010

 

Residential real estate generally represents the largest store of household wealth in a country. Often acquired by owner occupiers using mortgage finance, banks and institutional investors might have exposure through debt structures, including residential mortgage backed securities. However, institutional investors are much more rarely involved in equity positions, despite rather favourable risk-adjusted return ratios for the general residential sector compared with other real estate sectors.

 

Times are changing again for prime European real estate markets. But this holds mostly for the investment market, which has modestly rediscovered the upward path, and where activity is causing prime yields to head down again in an increasing number of markets. On the other hand, most property occupation markets are still weakening and will improve only from 2011 on. The recovery of European markets is unlikely to be swift and strong, as economic growth has severe downside risks and future investment activity will remain modest. Nevertheless, property yields relative to government bonds indicate prime real estate as an attractive asset class. For the coming two years, we expect retail and industrial markets to show more attractive returns than office and residential markets (see final page). Divergences between markets will however become more prominent, as we discuss in this report.

 

The countdown to the real estate recovery appears to have begun. More advanced in some regions and some countries than others, it is likely to spread gradually around the world. We believe that in much of Asia ex Japan and in the UK in Europe in particular, the point of take-off seems to have been reached. Australia and parts of Continental Europe appear to us to be following close behind. Weighed down by the volume of real estate debt, the US appears to be stuck on the launch pad for the time being.

 

Global Vision, our flagship global research publication, is produced annually but has quarterly updates. The Q2 update 2009, covers the outlook for global real estate markets based on the recent Global House View using our forecasts for the global property markets. There seems to be the early signs of a change in outlook with many leading economic indicators and sentiment indices starting to show positive trends; or at the very least the indicators have stopped deteriorating at such a rapid pace.   

The quarterly update – “Are We There Yet” – considers if we have reached the trough in the global real estate markets around the globe. Our conclusion is that we still have further capital value adjustments to come in many markets during 2009 and 2010. In the US and UK the worst is behind us, as these markets have already seen large peak to trough adjustments.

 

The economic “green shoots” reported during the last few months might very well turn into “yellow weeds.” The recent optimism reflected by forward-looking indicators has not yet translated into improving hard economic figures, which are more relevant for property markets. The 2009 economic outlook is still being adjusted downward for most European countries. At the same time, initial yields continue to rise, which, combined with a deteriorating income outlook and a difficult refinancing environment, will continue to depress property values. But real estate is cyclical, what goes down will likely eventually go up – the question remains: when?