Glimmers of Hope Mark New Report

Among the glimmers of hope outlined in the report are an uptick in investment sales volume in Asia, signs that property markets are stabilizing in the Pacific region and increased activity in the investment market in Europe, the Middle East and Asia. But the report also notes, "There are no signs of recovery for the market in the US." Vacancy rates in the office, industrial and retail property markets continued to rise in the second quarter, it says.

Raymond Torto, CBRE's global chief economist, observes that it is "startling" how much more optimism is found in Asia, compared with investor sentiment in mature economies. "Investors have missed the absolute bottom is the refrain I hear most often from Asia," Torto says.

According to the new report, the market in Asia has adjusted quickly and pricing may have hit bottom in some cities in the second quarter. "In China and Hong Kong, residential sales transactions continued to rebound strongly, while overall market sentiment and investment transaction activity improved somewhat in Japan, Korea, India and Singapore," the report states. However, overall prime office rental rates in Asia dropped in Q2 and a number of office markets continued to record negative net absorption and falling occupancy rates.

Regarding the Pacific region, the report says that the hopeful signs include the closing of some larger investment transactions, a slowing of the amount of sublease office space coming onto the market and improvements in consumer and business confidence measures. In the region encompassed by Europe, the Middle East and Asia, investments increased to €13 billion, from €11.6 billion in the first quarter of this year.

"While it is too early to predict a sustained upturn, there is some expectation that Q4 could see a modest further improvement in transaction volumes," the report states. It points out that although investment market activity quickened in London, office leasing activity in the main European markets "is still very subdued," with the CBRE EU-15 index of prime office rents falling by 2.9% in Q2 and on course to show significant year-over-year contraction relative to 2008.

Torto observes that the countries most burdened with weak credit institutions are in for a longer recovery period than others. "While the severe recession of the last year was synchronized across the globe, the recoveries will widely vary, determined mostly by the strength of a country's banking system," he says. Although the lack of financing for real estate transactions and weakening property fundamentals have driven real estate asset prices down by 35% to 50% from the peak levels of 2007-08, in many markets, this process of value adjustment is far from complete, he says.