Western Europe is falling behind the emerging markets of Asia and Eastern Europe in terms of new investment demand for commercial property, according to a new report published by Royal Institution of Chartered Surveyors (RICS).
The first RICS Global Property Survey, based on information collected from over 60 cities around the world, shows an industry experiencing a boom in demand for property assets. It looks at trends in occupier and investment activity during the second half of 2004 compared with the first six months.
Business real estate requirements are rising strongly in the emerging economies of Asia and Eastern Europe where low labour costs and increased corporate investment are boosting demand for commercial real estate.
By comparison, occupier demand is almost flat in Western Europe with the notable exception of the London market. There has been a firm employment related bounce-back in the US after several undistinguished years following the dot com technology crash. Japan is also experiencing signs of an even more marked turnaround following the malaise of 1990s.
Investors, on the other hand, are piling into the sector across the board. Despite a recovery in equity prices the trend is now for diversification, as investors look for a more sustainable spread of holdings to avoid over-exposure to a single asset class. In emerging economies like China though, the survey detects investor hesitancy due to a lack of market transparency.
Australia is the one market where commercial property investment demand is flat due to a rise in transaction taxes.
“Commercial property investment, once seen as a marginal or niche area, is now being recognised globally as a mainstream investment asset,” says RICS chief executive Louis Armstrong. “A low interest rate environment and the introduction of innovative financial vehicles like REITs have made the market more accessible to a larger group of investors, including individuals looking to safeguard their pensions.”