New Optimism Points to an Upswing in RE Markets

by CoyDavidson on November 7, 2010

Colliers International Global Investor Sentiment Survey for Q3 2010

SEATTLE, November 8, 2010 – Most commercial real estate markets around the world have passed the bottom and are now on the rise, according to the majority of respondents in the Colliers International Global Investor Sentiment Survey for Q3 2010. Additionally, a full 90 percent of survey participants said they planned to expand their current level of real estate holdings within a year or maintain them at current levels.

The largest group of survey respondents, which included real estate investors in every region of the world, put the Global Property Clock for their respective regions at eight o’clock, with the second and third largest groups at six and seven o’clock, respectively. These responses indicate that most markets globally are on the upswing and are characterized by rising demand, falling availability and vacancy and rising headline rents. This marks a significant move from Collier’s last Investor Sentiment Survey conducted in Q1 2010, when most respondents placed their markets at between 5 and 6 o’clock.

The Global Property Clock equates market cycles to specific times of the day, with 12 o’clock representing the top of the market and six o’clock representing the bottom. Each six-hour period in between designates rising (after 6 o’clock to 12 o’clock) or declining (after 12 o’clock to 6 o’clock) cycles.

With most global markets poised for rent increases, 60 percent of survey respondents said they are looking to expand their portfolios in the next 12 months, while 31 percent said they plan to maintain their portfolios at current levels. Only 9 percent expressed a desire to reduce the size of their portfolios.

“Most of the survey’s top line findings demonstrate a growing optimism in the global real estate market,” said James W. Horne, chairman, Colliers International Asia Pacific and executive sponsor of Colliers International Global Investment Services. “While current sentiment varies by region, the large majority of respondents felt the market would still be on the upswing one year from now. Optimism in the market is reinforced by the nearly three-quarters of respondents saying a double dip recession is unlikely.”

Most investors who want to expand their portfolios said they would do so in their own countries, but 30 percent said they would look outside their home markets. In the previous survey taken during Q1 2010, only 20 percent of respondents were interested in investing outside their home markets. The most frequently mentioned markets for cross border investment were New York, Chicago, San Francisco, Washington, London, Sydney, Singapore and Hong Kong. Some emerging markets also were mentioned for cross-border investment, including Poland, Ukraine and Brazil.

When it comes to financing, sentiment is mixed. Nearly half (44 percent) of survey respondents believe there is easier access to debt now than there was 12 months ago, but 36 percent indicated that debt was more difficult to come by. Compared to the Q1 2010 results, however, debt is now perceived to be more widely available than a year ago. Opinion also was mixed concerning the cost of debt, with more than half the respondents (56 percent) finding the cost of debt either the same or lower than 12 months ago and 44 percent saying the cost had increased over the past 12 months.

Looking forward, nearly eight of ten respondents think debt will be easier to access in the next 12 months. Respondents who said they believe the cost of debt would rise in the next 12 months fell slightly from the first quarter of 2010, with 44 percent predicting an increase versus 52 percent six months ago.

Some of the key regional findings of Colliers International’s Q3 2010 Global Investor Sentiment Survey include:

  • In Western Europe, 62 percent of respondents now intend to make cross-border investments, a notable increase from the figure of 30 percent for Q1 2010.
  • A significantly greater proportion of US investors (65 percent) indicated they are considering selling property over the next 12 months versus the Q1 2010 response of 23 percent.
  • 73 percent of Asian investors expect to expand their property portfolio in the next 12 months, up from 65 percent in Q1 2010.
  • Looking ahead to the next 12 months, fewer Pacific (Australia and New Zealand) investors (46 percent) expect to expand their property portfolio compared to the 68 percent who expected to expand in Q1 2010.
  • Among investors from the Middle East and Africa, 63 percent stated that they would be looking to actively reduce risk levels, with 25 percent indicating they would look to increase the diversification of their portfolio, implying an overall degree of risk management.
  • Across Central and Eastern Europe, the range of locations being targeted by investors was quite diverse, although Warsaw remains the most popular destination, notably for office product. Other popular targets quoted were Kiev, Prague, Moscow and Bucharest.
  • Among Latin American investors, 69 percent of those surveyed reported they will not reduce their risk levels.
  • 67 percent of the Canadian Investors surveyed think that prime effective rents for the office market will either hit bottom by Q2 2011 or have already hit bottom. In the industrial market, 78 percent of investors think the bottom has either been reached or will be reached by Q2 2011 and that percentage jumps to 83 percent for retail.

The Colliers International Q3 Global Investor Sentiment Survey was conducted from August 15 to September 7, 2010. More than 200 major institutional and private investors with holdings of US $710 billion and representing a cross-section of property investors around the globe participated. The survey’s primary purpose is to better understand global investor attitudes in the current marketplace at a global and regional level, including investors’ outlook for the coming 12 months.

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