The survey indicates the picture also remains negative for most developed markets. It projects a worldwide decline in capital values for all types of real estate, though it says the rate of decline in Western Europe will be only half that of North America Asia and the Australia-Pacific region. The underlying cause was the Q1 reversal of growth in tenant demand, the first time demand turned negative in in over four years. Only Australia and Latin America recorded overall occupancy gains.
"Few markets have escaped the credit malaise which has engulfed commercial property activity since last summer," says RICS senior economist, Oliver Gilmartin. "What started in the developed world has spilt over into investment activity across several emerging markets. With prime yields across some emerging European cities now on par with those in developed markets, it is little surprise that investors have turned cautious on a relative valuation basis when risk is factored into the equation."
According to the survey, whose results are based on the positive or negative differential between survey respondents projecting rises and those projecting declines, the biggest falloff was recorded in the industrial markets of emerging economies, where the pace of expansion in tenant activity and rental growth halved. Weaker demand in these markets led to a modest rise in overall global availabilities. As a result, incentive packages have been on the increase in many regions, though they remained stable in Western Europe and Asia's developed markets and fell by 5% in Eastern Europe and 15% in Latin America.
Another negative for emerging markets is a growing construction pipeline, with all regions recording an increase in industrial completions compared to a year ago. Furthermore, the Middle East, Africa and newer markets in Europe and Asia all showed continued expanding development despite lessening demand. North America, Europe and developed Asia, on the other hand, are experiencing declining development. Latin America recorded a 41% increase in its construction pipeline, but continued growth in tenant demand makes it less problematic.
Despite what appears to be a generally negative scenario, RICS reports the majority of industrial landlords in almost all regions expect to see rent growth for Q2. The exception is the developed markets of Asia, where a small majority of landlords project a decline in rents. Investors also generally expect to see yield growth, though respondents projecting yields to decline predominated in emerging Asia, Africa and the Middle East. Respondents in North America and Western Europe were particularly bullish on the potential for yields to rise. Nonetheless, survey respondents overall indicated investors remain hesitant to commit to new purchases.
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