CBRE: Investor Demand Boosts Office Values

LOS ANGELES-The value of global office properties continued to rise steadily while global office rents held steady during the second quarter of 2013, according to research from CBRE Group, Inc. During the quarter, CBRE's Global Office Capital Value Index improved 1.0%, and its Global Office Rent Index edged up 0.2%, as notable strength in the Americas largely fueled the rise in both indices.

“Commercial real estate continues to hold strong appeal for investors in today's low interest rate environment,” said Raymond Torto, CBRE chairman, global research. “Despite the recent uptick in long-term interest rates, prime assets, in particular, offer attractive risk-adjusted returns compared with stocks and bonds. Meanwhile, the slow pace of the global economic recovery continues to inhibit rent growth. However, rents continue to remain broadly stable, as limited new construction in most parts of the world keeps available supply in check.”

REPORT DETAILS:

• The CBRE Global Office Capital Value Index continued to move gradually higher in Q2 2013, rising 1.0% during the quarter and 3.4% year-over-year. With low rates of return prevailing across other fixed-income asset classes, even with the recent uptick in long term interest rates, investors are willing to pay higher prices for the rising income streams available from well-situated commercial properties. The relatively limited supply of prime assets available for sale has also supported ongoing prime property price appreciation and yield compression.

• The Americas Office Capital Value Index continued to markedly outperform the other regional indices, growing 2.0% in Q2013 and 6.2% year-over-year. Prime assets in gateway markets like New York, Boston and San Francisco continued to attract investors who are willing to accept lower going-in yields for the relative safety and liquidity offered by prime assets in these markets. Investors are also increasingly gravitating toward Texas markets, including Houston, Austin, Dallas and San Antonio, where strong employment prospects support expectations for future income growth.

• The EMEA Capital Value Index improved for the third consecutive quarter; however, the pace of growth remained slow, at 0.5% for Q2 2013, and the index stands only 1.8% higher than a year ago. Both Dublin and Zurich are regional standouts, experiencing strong capital value growth, while declines are limited to a few markets in Spain, Italy and France.

• Despite growing just 0.8% in Q2 2013, Asia Pacific remains the only region whose Capital Value Index has fully rebounded from the financial crisis, and today stands 5.3% above its pre-crisis peak in Q2 2008. On a year-over-year basis, the Asia Pacific Capital Value Index is 2.2% higher, as asset values have largely stabilized after a strong upswing immediately following the global financial crisis.