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  • GLOBAL MARKET PERSPECTIVE Global Foresight Series 2013

    COPYRIGHT © JONES LANG LASALLE IP, INC. 2013. All Rights Reserved

    Global Market Perspective First Quarter 2013

  • COPYRIGHT © JONES LANG LASALLE IP, INC. 2013. All Rights Reserved 2

    Global Market Perspective, First Quarter 2013

    Global Market Perspective First Quarter 2013

    Optimism returns to the global real estate market The global real estate market steps into 2013 with a more confident stride. An exceptional rally in the final quarter of 2012 has served to demonstrate the strength of investors’ appetite for commercial property. The search for yield in a low interest rate environment, combined with a perceived reduction in macro-economic risks and a selective improvement in debt markets, is supporting increasing investor activity. In this context, we expect investment volumes to grow in 2013 by a further 10-15% on 2012 levels, with upside potential in the best secondary markets, which are now beginning to attract investor interest with their more attractive yields.

    The leasing markets have been less resilient however, as corporates focus on productivity gains and cost savings, rather than on expansion. But even here, we detect an improvement in optimism, which should translate into renewed growth in leasing activity during 2013, with momentum gathering pace during the second half of the year. Prime rents are projected to increase modestly, by an average of 2-3% in 2013, but given shortages of high-quality space and low levels of new construction pipeline, even a modest uptick in absorption above our baseline projections could trigger rental spikes in some markets.

    The key highlights from the First Quarter 2013 Global Market Perspective are:

    • Economy: The global economy begins to stir; major macro-economic risks appear to be receding.

    • Investment Volumes: An exceptional Q4 pushes 2012 volumes to US$443 billion, exceeding 2011 levels.

    • Capital Markets Outlook: Global volumes set to approach US$500 billion in 2013. Strongest upside in the Americas (+15-20%) and Asia Pacific (+15%). Volumes in Europe likely to be similar to 2012.

    • CMBS: U.S. CMBS market registers solid growth.

    • Corporate: Leasing markets still subdued. Office volumes down circa 20% year-on-year in 2012.

    • Leasing Market Outlook: Office leasing volumes projected to show modest

  • COPYRIGHT © JONES LANG LASALLE IP, INC. 2013. All Rights Reserved

    Global Market Perspective, First Quarter 2013

    Global Market Perspective

    Contents

    Global Economy ................................................................................................................................................................ 4 Global Property ................................................................................................................................................................. 6 Capital Markets Outlook ...................................................................................................................................................... 7 Leasing Markets Outlook .................................................................................................................................................... 8 Global Real Estate Health Monitor ................................................................................................................................. 10 Real Estate Capital .......................................................................................................................................................... 11 Corporate Occupiers ...................................................................................................................................................... 16 Office Markets ................................................................................................................................................................. 18 Office Demand Dynamics ................................................................................................................................................. 18 Office Supply Trends ......................................................................................................................................................... 20 Office Rental Trends ......................................................................................................................................................... 22 Office Capital Values and Yield Trends............................................................................................................................. 24 Retail Markets .................................................................................................................................................................. 25 Industrial Warehousing Markets .................................................................................................................................... 27 Hotel Markets ................................................................................................................................................................... 28 Residential Markets ........................................................................................................................................................ 31 Recent Key Transactions ............................................................................................................................................... 32

  • COPYRIGHT © JONES LANG LASALLE IP, INC. 2013. All Rights Reserved 4

    Global Market Perspective, First Quarter 2013

    Global Economy Global economy stirs again

    The economic gloom of the last 12 months or more appears to be lifting. The most obvious sign of revival has been the rally in equity markets, with some bourses touching their highest levels since 2008. A last-minute New Year tax agreement in the U.S. has helped spur the rise - although it gives only temporary respite on the ‘fiscal cliff’ - and this has been reinforced by more encouraging economic news. In China, evidence is growing that the recent slowdown was a temporary pause and that the economy is gaining momentum again.

    Even the Eurozone, which has presented the gravest threat to the global outlook over the last two years, looks to be ‘on the mend’. Economic data continue to be downbeat, but the evidence from bond spreads is that the threat of a currency break-up is steadily receding. The Eurozone is certainly not ‘out of the woods’ and many debtor nations face another challenging year. But, while caution is still in order and any improvement will be slow, the major event risks seem to be reducing and conditions are falling into place for recovery.

    Any tentative revival will be slow to feed into the hard data, but the latest IHS Global Insight forecasts are slightly more upbeat than three months ago. Expectations for this year have since been upgraded across Asia and Europe. The main cloud on the horizon is the sharp downward revision to the outlook for Japan since October 2012, as its economy struggles to sustain momentum in consumer and export growth.

    GDP Projections 2013 in Major Economies – Recent Movements

    Australia China France Germany India Japan UK USA

    October 2012 2.1 7.6 -0.2 0.6 5.7 1.1 0.9 1.8

    January 2013 (Latest) 2.4 8.0 -0.1 0.9 6.6 0.0 0.9 1.7

    Change (bps) +30 +40 +10 +30 +90 -110 0 -10 Source: IHS Global Insight, January 2013

    Pace of recovery likely to be slow over the next 12 months

    Many developed economies ended 2012 close to or in recession and a rapid turnaround is not expected in early 2013. Even if the positive trends are upheld, rates of growth in 2013 as a whole will remain well below historic norms. The lingering concern for governments in the developed world will be how to foster a self-sustaining revival. In 2009-2010 these economies appeared to be emerging from their deep trough and hopes were high of a return to more normal expansion. However, demand evaporated in 2011 as the crisis in the Eurozone and tighter policy conditions halted the recovery in its tracks.

    Why should the upturn be different this time? In 2011, central banks were poised to raise interest rates in many markets, as inflation was high and rising. This time, any monetary response is likely to be far more cautious, with some looking to follow the Fed’s line and commit to holding rates low for several years. There is also a view that fiscal policy was tightened far too aggressively in 2010-2011, especially in Europe, and that such austerity was counter-productive. There is now even less scope for stimulus with public debt levels still spiralling, but, as with the U.S. ‘fiscal cliff’, it is hoped that governments will tread carefully and delay tough adjustments until the upturn is well established.

    Even if these policy mistakes are avoided and recovery is secured, polarisation will remain a key feature of the outlook, as the legacy of the Global Financial Crisis (GFC) weighs more heavily in some regions. In particular, a lasting consequence of the Eurozone crisis will be slower growth over the longer term. This is, in part, the cost of avoiding a break-up, as the core economies will demand further austerity from those that are ‘fringe’ which, in turn, will limit growth across the whole single currency area.

  • COPYRIGHT © JONES LANG LASALLE IP, INC. 2013. All Rights Reserved

    Global Market Persp