Colliers international 21_predictions_for_2013

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General investor mood is one of cautious optimism around the globe. Colliers Global Investor Sentiment Survey revealed that most property investors now classify themselves as low to moderate risk-takers. Yet, there is much to be positive about in the coming year, with investors expecting steady economic improvement. We favor this sentiment and believe that while the global economy will face headwinds from recession in Europe and moderating global demand for commodities, 2013 will end with a respectable 1.5% to 2% global GDP growth rate. For the commercial property sector, beneficiaries of the current environment will include office properties in global safe-haven cities such as London and New York and industrial properties in global transportation centers that have enacted infrastructure investments, such as U.S. East Coast ports including Baltimore, Charleston and Miami, which have invested the capital to prepare for the widening of the Panama Canal

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  • 1. COLLIERS.COM/RESEARCH | P. 1 21 PREDICTIONS FOR 2013 | WHITE PAPER | JANUARY 2013COLLIERS INTERNATIONAL | WHITE PAPER General investor mood is one of cautious optimism around the globe. Colliers Global Investor Sentiment Survey revealed that most property investors now classify themselves as low to moderate risk-takers. Yet, there is much to be positive about in the coming year, with investors expecting steady economic improvement. We favor this sentiment and believe that while the global economy will face headwinds from recession in Europe and moderating global demand for commodities, 2013 will end with a respectable 1.5% to 2% global GDP growth rate. For the commercial property sector, beneficiaries of the current environment will include office properties in global safe-haven cities such as London and New York and industrial properties in global transportation centers that have enacted infrastructure investments, such as U.S. East Coast ports including Baltimore, Charleston and Miami, which have invested the capital to prepare for the widening of the Panama Canal. JANUARY 2013 Colliers Internationals 21 Predictions for 2013 Table Of Contents 2 GLOBAL 5 EUROPE, MIDDLE EAST & AFRICA 7 UNITED STATES 6 LATIN AMERICA 5 CANADA 3 ASIA 4 AUSTRALIA & NEW ZEALAND

2. COLLIERS.COM/RESEARCH | P. 2 21 PREDICTIONS FOR 2013 | WHITE PAPER | JANUARY 2013COLLIERS INTERNATIONAL | WHITE PAPER 1 ICEE INDUSTRIES WILL DRIVE FIRST WORLD ECONOMIC GROWTH Intellectual Capital, Energy and Education (ICEE) industries will drive economic growth in the developed world. Tech growth will continue to support FIRE (Finance, Insurance and Real Estate) demand in markets such as San Francisco, Tel Aviv, Dublin and London. In the U.K. and North America, maturing e-commerce networks will reshape distribution strategies in the logistics market. Tech companies will generate further demand for office space, although many will be sophisticated users with lighter-than-traditional office footprints. 2 LABOR DISPUTES WILL CAUSE TRADE DISRUPTIONS Disagreement between management and labor, for a variety of causes, will affect economic growth in the coming year. Port labor strife is likely to be a dominant global threat through 2014. Strikes by the International Longshoremens Association could close down major ports on both U.S. coasts, backing up retail supply chains and disrupting transportation and warehousing. Shippers and retailers will look to expand redundancy in their port-related supply chains and also grow port relationships in Canada, Mexico and U.S. right-to-work states. Europe can expect labor flare-ups in struggling Spain and Greece. In France, new austerity measures could also spark public sector workers to strike. Wage disputes at the Panama Canal could halt or slow both expansion work and cargo traffic. 3 CMBS WILL BE SUBDUED FOR A FOURTH YEAR AS U.S. BANKS PLAY THE WAITING GAME CMBS loan growth will continue its sluggish recovery as U.S. banks take a wait-and-see approach to new federal regulations. The Fed has announced no timeline for the release of bank capital hold requirements. When the rules are made clear, CMBS issuance in the U.S. will rise. In Europe, CMBS issuance remains subdued not for lack of rule clarity but rather a lack of demand due to nervousness about the general state of the European economy and the fact that a significant number of legacy loans are still in work-out or standstill mode. GLOBAL 3. COLLIERS.COM/RESEARCH | P. 3 21 PREDICTIONS FOR 2013 | WHITE PAPER | JANUARY 2013 4 PRICE INFLATION WILL PRESSURE HEATED ASIAN REAL ESTATE We expect most Asian economies to foster private consumption growth through a variety of policy initiatives in 2013. Meanwhile, geopolitical tensions could push oil prices sharply higher given low global inventories and spare capacity. Extreme weather conditions may lead to harvest disruption and also inflate prices. Real estate investment will be especially attractive amid expectations of price inflation, but it will add pressure to the already heated Asian real estate markets. 5 PROPERTY YIELDS IN ASIA WILL COMPRESS TO HISTORIC LOWS The continued high volume of capital seeking investment in a limited supply of Asian real estate will combine with the growing risk appetite of real estate funds with newly loosened loan-to-value ratios. This will be supported by new lending on both core and mezzanine loans. 6 ASIAN COOLING MEASURES ARE HERE TO STAY In anticipation of currency appreciation and sustained capital flow into Asia, most of the restrictive residential market cooling measures will remain intact throughout 2013. Governments will stabilize markets to avoid social unrest caused by soaring residential prices. The new Chinese leadership is expected to adopt a more conservative approach to growth and economic reform. Non-residential real estate assets will be increasingly popular among a wider group of buyers including private equities, end users and real estate funds. 7 JAPANS ECONOMY WILL IMPROVE With the Liberal Democratic Party back in power after the December election, a new prime minister will enact economic stimulus measures meant to hold down inflation, making for a cheaper yen to support an export-led economy. 8 CHINA WILL SEE RISING DEMAND FOR LOGISTICS Relatively little land in China has been designated for development into logistics property. This constrained new supply, combined with several other factors, will make Chinese logistics facilities star performers in 2013. ASIA 4. COLLIERS.COM/RESEARCH | P. 4 21 PREDICTIONS FOR 2013 | WHITE PAPER | JANUARY 2013 A growing roster of small to medium enterprises will outsource their logistics operations to save costs. Intra-regional trade flows in Asia will continue to perform well, compared to total exports to the western economies. Inflation fears in countries including China, Indonesia, the Philippines and Thailand will foster retail sales of foodstuffs and consumer goods, as well as the logistics required to deliver them to the marketplace. 9 INDIAS GDP WILL BEAT FORECASTER EXPECTATIONS Indias GDP growth will reach 6.5% in 2013. Past growth forecasts have suffered from downward revision owing to the lack of implemented reform measures expected from the current government. However, the government has recently displayed a keen resolve to introduce numerous fiscal and economic measures, including allowing foreign direct investment in multi-brand retail; introduction of a uniform goods and service tax; capping subsidies on LPG, diesel, petrol and fertilizers; pilot programs for direct cash transfer; reducing the budget deficit; and increasing investment in infrastructure. Indias central bank is expected to slash bank rates in the first quarter of 2013, which will further foster growth. 10 INDIAN RENTAL RATES WILL DROP ON THE BACK OF LOW DEMAND AND HIGH VACANCY The year-to-date absorption of commercial office space in the third quarter of 2012 was approximately 40% lower than the same period in 2011. Our expectations for demand for office space in 2013 are also low. Rental values will face downward pressure on the back of low demand and vacant stock. BangaloreIndias IT hubwill be the most resilient market. Its current 14% vacancy is lower than other Indian cities. On the other hand, cities like Chennai, Mumbai and Delhi will face moderate downward pressure on rental values. 11 AUSTRALIAN DOLLAR WILL REMAIN HIGH The two-speed nature of Australias economic growth will continue, however slowing economic growth in China and a stalling of several major mining projects means that mining growth is set to moderate. While there is some hope that this will lead to a depreciation of the Australian dollar and a corresponding resurgence in the larger, non-mining states of New South Wales and Victoria, this has not yet occurred. We expect that quantitative easing in Europe, U.S. and Japan will keep the Australian dollar high for at least the next 12 months. AUSTRALIA & NEW ZEALAND 5. COLLIERS.COM/RESEARCH | P. 5 21 PREDICTIONS FOR 2013 | WHITE PAPER | JANUARY 2013 13 CANADIAN DEMAND DIVIDE WILL CONTINUE In Canada, the divide between the east and west is firmly entrenched, with the energy and mining sectors driving stronger commercial property demand in Alberta, Saskatchewan and British Columbia. Industrial demand will be moderate in the East, as export and goods pro- duction activity flattens. Canadian office space demand will soften in major markets with the exception of Calgary and Edmonton. CANADA 14 - EUROPEAN BIFURCATION: EURO AREA WILL SEE A FURTHER NORTH/SOUTH SPLIT Northern countries in the eurozone will continue to see stronger economic growth than their southern and peripheral counterparts, which will remain weak with local recessions. EUROPE, MIDDLE EAST & AFRICA 12 DOMESTIC INVESTORS WILL RAMP UP COMPETITION IN AUSTRALIA Offshore investors account for more than half of all transactions in excess of AU$5 million (US$5.24 million) in 2011 and 2012, attracted by the transparency of Australian property markets, strong economic growth and, most importantly, the high yields of Australian property relative to other investment opportunities. One of the main reasons that yields remained high despite strong interest from offshore groups is that Australian investors have been relatively inactive. This has started to change over the past six months with a number of domestic REITS acquiring properties once again, as well as several Australian pension funds stating that they would be increasing their allocations to direct property. Expect a firming of yields in 2013, particularly for prime stock, and investors moving up the risk curve to achieve superior returns. 6. COLLIERS.COM/RESEARCH | P. 6 21 PREDICTIONS FOR 2013 | WHITE PAPER | JANUARY 2013 The eurozone as a whole will post marginal 0.25% GDP growth in 2013, with business in- vestment and occupier demand gaining traction in th