There was understandable optimism that 2013 would be the year when the world economy finally began to shrug off the legacy of the credit crunch and the subsequent recession. However, growth expectations in some parts of the world still remain uncertain as the year has advanced, holding back the occupier market. This is particularly the case across most of the euro area as well as the CEE (central and eastern Europe) region.
The occupier market remains challenging although there are some bright spots, particularly Germany and Russia. Fortunately, at the same time, there are already some indications that investor appetite is returning to the region.
This likely reflects a combination of factors including growing distressed property interest, particularly in Spain and France, and also — not withstanding recent global financial market jitters — the broader improvement in investor risk appetite since last summer following the introduction of the European Central Bank’s Outright Monetary Transaction (OMT) programme.
A recent theme in Europe is the spreading of stress from Europe’s peripheral markets to its core. Indeed, it is noteworthy that the overall rental growth outlook in France is now more depressed than in Greece, Spain or Italy. Another theme has been the partial turnaround in Ireland; occupier and investment activity is now rising and this is beginning to feed through to expectations on the investment side.
Sentiment in the UAE real estate market is continuing to improve after a torrid period. Both the occupier and investment markets are warming up — with the pace of demand outgrowing that of supply — being led in very broad brush terms by the retail sector. A number of factors are helping the investment market; the flow of distressed assets coming to the market has stabilised and capital is reportedly pouring in from abroad, which may be related to instability in other parts of the region.
In Asia, major real estate markets remain buoyant. Sentiment in China is still strongly positive in both the occupier and investor markets. Meanwhile, in Japan the mood is more upbeat thanks to extraordinary fiscal stimulus and bolder monetary policy implemented by the new Abe administration.
However, in Hong Kong, the picture is more mixed; the investment market shows a marked deterioration — in part due to the implementation of a double stamp duty in February — but the occupier market is proving more resilient. In Singapore, the market still appears to be lagging but survey respondents are sensing that the mood is beginning to improve.
The Australian occupier market remains subdued, with an overhang of supply exerting downward pressure on rents, but sentiment is holding up fairly well in the investment market. Meanwhile, in New Zealand, the occupier market is stabilising and there are signs that momentum is picking up in the investment market.
Sentiment in the Indian real estate market is more positive on the investment side — thanks to larger capital inflows — rather than the occupier side. Indeed, it appears that the slowdown in economic growth over the past year is still taking its toll on occupier demand, although the economy is expected to improve over the balance of 2013.
Ongoing issues such as high inflation, a large budget deficit and the slow pace of regulatory reform is weighing down on business sentiment.
From experience we know that it is precisely in times of uncertainty that the market demands governance, quality and professionalism, and we see it as our challenge to continue to ensure the quality of the work done by RICS members. For this reason, we are continuously developing our regulatory services via the independent monitoring of our members’ ethical behaviour and professional practice.
The writer is the managing director at RICS’ Europe, Middle East and Africa operations.