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* RICS Occupier Sentiment Index (OSI) is constructed by taking an unweighted average of readings for three series relating to theoccupier market measured on a net balance basis; occupier demand, the level of inducements and rent expectations. RICS Investment Sentiment Index (ISI) is constructed by taking an unweighted average of readings for three series relating to the
investment market measured on a net balance basis; investment enquiries, capital value expectations and the supply of distressed properties.
• Japan remains robust, while the US shows some of the strongest Q4 momentum • Ireland and New Zealand now lead the way in terms of occupier market improvement • Sentiment still weak in Brazil, while deteriorating even further in Russia
The Q4 2014 RICS Global Commercial Property Monitor shows momentum beginning to shift up a gear in a number of countries, although conditions vary considerably. RICS composite indicators - the Investment Sentiment Index (ISI) and Occupier Sentiment Index (OSI) - confirm that commercial property continues to perform strongly in Japan, in keeping with results posted over much of the past two years. What's more, forward looking indicators are pointing to this trend being sustained, with further meaningful rental and capital value gains anticipated by survey respondents. Although this may appear inconsistent with downbeat macro data, the low interest rate environment and high levels of liquidity are key driving forces behind the robust market trend. Significantly, New Zealand and Ireland now exhibit the firmest OSI readings, indicating occupier market conditions in these two countries are now improving at the fastest pace in this quarter’s survey. Both economies have grown in excess of 3% over the past year and have achieved rapid rates of job creation, although it should be noted that Ireland’s upturn started from a considerably lower base.
Elsewhere, the US market appears to have strengthened over the past few months. Indeed, tenant demand and investment enquiries are rising significantly, which is in line with GDP reportedly growing at an annualised pace of 5% in Q3 and the rate of unemployment having fallen to its lowest level in over six years. The latest RICS results also show solid momentum in Spain, Portugal, Germany and the UK, with each country expected to record firm capital value and rental growth over the coming twelve months. In fact, Portugal and Spain registered the sharpest increase in investor demand during Q4 (in net balance terms), relative to all nations covered in the monitor, which signals a strong rebound after the harsh impact of the 2008 global financial crisis in both cases.
By way of contrast, the performance of the occupier markets in France and Italy remains poor, as weak tenant demand is being accompanied by rising availability of space. Unemployment rates have actually edged up over the past year in both instances which goes someway to explaining the poor backdrop. Consequently, near term rent expectations remain negative. Crucially, however, the investment markets are showing some early signs of improvement, with investment enquiries rising substantially in France and at a more moderate rate in Italy. That said, this has yet to fully feed through into capital value expectations which paint a broadly flat picture near term, albeit certain areas of the market may see marginal growth.
The performance across most emerging markets was uninspiring during Q4, although respondents in India remain optimistic about the year ahead (also reflected in the relative resilience of the stock market). As such, with the exception of Ireland, India exhibits the strongest twelve month growth projections for rents and capital values compared with all other areas. Meanwhile in China, OSI and ISI readings are implying a flat market, with growth in supply outweighing that of demand on both the investment and occupier sides. This trend chimes somewhat with the general slowdown in the rate of Chinese economic expansion in recent quarters. Despite this, small gains in prices and rents are expected over the coming twelve months, although respondents have been scaling back their projections.
Indicators continue to highlight deteriorating market conditions in Brazil, where both occupier and investment demand remain in decline. Subsequently, capital values and rents are projected to fall across the board during the year ahead, albeit expectations are not quite as negative as previously. The medium term outlook does, however, turn more upbeat as respondents are anticipating commercial property prices and rents to return to growth over the next three years. Feedback from Russia is more troubling; 54% of respondents expressed the view that Rouble depreciation was a threat to business (31% stated it was too early to tell).
Moreover, interest rates have been raised to 17%, the economy is now contracting, and the huge fall in oil prices is likely to further exacerbate the economic turmoil. Together, these impediments present a challenging set of circumstances for the commercial property sector, with little respite anticipated in the foreseeable future.
RICS Global Commercial Property Monitor
RICS Global Commercial Property Monitor
Q4 2014
RICS ECONOMICS
Simon Rubinsohn
Chief Economist
srubinsohn@rics.org
+44 (0)207334 3774
RICS
Global Commercial Property Monitor
Occupier Sentiment Index and Investment Sentiment Index
Twelve Month Rent and Capital Value Expectations (net balance %)
Canada France Germany Italy Japan UK US Russia Brazil China India Hungary Australia Austria Hong Kong Netherlands New Zealand Poland Ireland Romania Singapore South Africa Spain UAE Portugal Bulgaria Czech Republic -80 -60 -40 -20 0 20 40 60 -80 -60 -40 -20 0 20 40 60
Occupier Sentiment Index Investment Sentiment Index
Canada France Germany Italy Japan UK US Russia Brazil China India Hungary Australia Austria Hong Kong Netherlands New Zealand Poland Ireland Romania Singapore South Africa Spain UAE Portugal Bulgaria Czech Republic -100 -80 -60 -40 -20 0 20 40 60 80 100 -100 -80 -60 -40 -20 0 20 40 60 80
12 Month Rent Expectations 12 Month Capital Value Expectations
RICS
Global Commercial Property Monitor
Tenant Demand - change with preceding quarter (net balance %)
-100
-80
-60
-40
-20
0
20
40
60
80
Russia
Austria
South Africa
Brazil
Australia
Netherlands
France
Singapore
Italy
Hong Kong
China
Canada
Poland
Czech Republic
India
Hungary
Germany
UK
Portugal
UAE
Bulgaria
New Zealand
Romania
Spain
US
Ireland
Japan
RICS
Global Commercial Property Monitor
Investment Enquiries - change with the preceding quarter (net balance %)
-100
-80
-60
-40
-20
0
20
40
60
80
100
Russia
Singapore
Brazil
Austria
China
Bulgaria
Hong Kong
Italy
India
South Africa
UAE
Canada
Australia
UK
New Zealand
Romania
Netherlands
Hungary
US
Czech Republic
France
Ireland
Germany
Japan
Poland
Spain
Portugal
RICS
Global Commercial Property Monitor
Information
RICS India T +91 124 459 5400 ricsindia@rics.org RICS UK T +44(0)20 7334 3774 srubinsohn@rics.org RICS Asia T +852 2537 7117 ricsasia@rics.org RICS Europe T+32(2) 733 1019 ricseurope@rics.org RICS Oceania T +61(2)92162333 in-fo@rics.org.au RICS Americas T +1 212 847 7400 ricsamericas@rics.orgRICS Middle East
PO Box 231078 Dubai
United Arab Emirates T: +971 4 375 3074
F: +971 4 427 2498 ricsuae@rics.org
RICS Global Commercial Property Monitor
RICS’ Global Commercial Property Monitor is a quarterly guide to the trends in the commercial property investment and occupier markets.
The Global Commercial Property Monitor is available from the RICS web site www.rics.org/economics along with other surveys covering the housing market, residential lettings, commercial property, construction activity and the rural land market.
For access to city level agents’ comments and contributor details please view the RICS economics website.
Methodology
Survey questionnaires were sent out on the 24th November with responses received until 18th December. Respondents were asked to compare conditions over the latest three months with the previous three months. A total of 1062 company responses were received, with 234 from the UK. Responses for Ireland were collated in conjunction with the Society of Chartered Surveyors Ireland.
Responses have been amalgamated across the three real estate sub-sectors (offices, retail and industrial) at a country level, to form a net balance reading for the market as a whole.
A positive net balance reading indicates an overall increase, a negative reading indicates an overall decline.
RICS Occupier Sentiment Index (OSI) is constructed by taking an unweighted average of readings for three series relating to the occupier market measured on a net balance basis; occupier demand, the level of inducements and rent expectations. RICS Investment Sentiment Index (ISI) is constructed by taking an unweighted average of readings for three series relating to the investment market measured on a net balance basis; investment enquiries, capital value expectations and the supply of investment properties.
Contact details
This publication has been produced by RICS Economics. For all economic enquiries, including participation in the monitor, please contact:
economics@rics.org
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Disclaimer
This document is intended as a means for debate and discussion and should not be relied on as legal or professional advice. Whilst every reasonable effort has been made to ensure the accuracy of the contents, no warranty is made with regard to that content. Data, information or any other material may not be accurate and there may be other more recent material elsewhere. RICS will have no responsibility for any errors or omissions. RICS recommends you seek professional, legal or technical advice where necessary. RICS cannot accept any liability for any loss or damage suffered by any person as a result of the editorial content, or by any person acting or refraining to act as a result of the material included.
