"There's a general sense that conditions in the regional economies are beginning to improve and that the worst is clearly behind us," Ken McCarthy, managing director of research at C&W, tells GlobeSt.com. "All over the world, there's a clear sign that economic decline has ended and economic expansion has returned. The pace, strength and durability of that expansion is what we're hoping to be able to understand better this coming year." The reports note that in some markets, notably the US, uncertainty about high unemployment, fragile recovery conditions and credit availability cloud the forecast.
For the commercial sector in the US, the improving economic picture should lead to "a lessening of the pressure" in 2010, according to C&W's report. However, the report states, "full recovery, on a national basis, will be delayed, as it always is due to the long-term nature of the transactions in the industry."
Vacancy is likely to rise in most cities this year, "even as employment increases," according to C&W. "Overall, however, we expect the lag to be much shorter in the 2010 recovery than in past cycles." One plus in this downturn is "the lack of significant speculative construction in most markets," meaning that the "large supply overhang" that usually slows recovery is not a factor this time around.
Asked whether the US is continuing to lag other parts of the globe in recovery, McCarthy says the gap is closing. ""Although we officially went into a recession in December 2007, the first half of 2008 was moderate decline," he says. "We didn't see a shift to a severe decline until the fourth quarter of'08. That decline occurred a little earlier in Europe—in London's real estate market, for example—and they started coming out of a little earlier." However, he adds, that US is now catching up.
In Europe, C&W forecasts a "slow and uneven" recovery that varies by country, but one that will be sustained. "Many of the concerns raised, including rising inflation and interest rates, an ending of fiscal stimuli and approaching asset price bubbles, will not materialize" this year. Moreover, C&W rules out a double-dip recession in Europe.
The Asia-Pacific economies are expected to grow by an average 5% this year, or about twice the rate of most other global regions, C&W says. That being said, the Asia-Pacific report points out, "If there is one lesson that we all learned from the crisis, it is that the world's economies are inter-connected. Beyond the financial linkages, which enabled distress in the US real estate and banking sectors to ripple around the world, Asia Pacific's economies remain heavily dependent on consumer activity in US and Western Europe, a fact that becomes readily apparent when we look deeper into the recovery presently taking place."
McCarthy says developing economies are generally outpacing developed ones in the recovery. "Those countries didn't have the same amount of leverage in their systems as the US and central European countries, and didn't have to deleverage as much," he explains. "They didn't have a lot of the declines in asset values driven by market bubbles."
He adds that when signs of a recession began to manifest, the governments in developing economies responded quickly. "They stimulated growth, perhaps more quickly than we did in this country," says McCarthy. In addition, he says, many of these countries have been in growth mode for some time. As a result, "they didn't really decline; they just slowed down."
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
