27 JAN 2022
Sentiment among professionals working in the global commercial real estate sector improved in the final quarter of last year, returning to positive territory for the first time since the onset of the pandemic (-28 in Q1 2020 to +01 in Q4 2021), despite concerns around the spread of the latest COVID-19 variant, as seen in the latest Global Commercial Property Monitor (GCPM).
Leading the way in positive sentiment is the Americas, the Middle East and Africa where the Commercial Property Sentiment Index (CPSI) – a weighted composite measure capturing overall market momentum based on the survey results – improved from -8 to +4. However, sentiment in some Asia Pacific markets continues to lag with the headline sentiment metric still in the negative territory.
Feedback from the recent monitor indicates positive investor demand compared to occupier demand, with the global Investment Sentiment Index climbing to +5 from -1. This sentiment is likely to be driven by the strong capital value growth that is anticipated over the next twelve months across sectors such as industrial, data centres, multifamily residential and aged care facilities.
The Occupier Sentiment Index however is recovering more modestly (from -6 in Q3 to -4 in Q4), which could be attributed to the renewed restrictions imposed in some parts of the world due to the spread of Omicron.
This quarter we also looked more closely at the changes impacting the office sector in the wake of the pandemic. Results showed that one-third of respondents no longer view office space as being essential for a company to operate successfully, and roughly 80% agreed on seeing a rise in demand for flexible and more local workspaces.
Find out more about what is driving the commercial property markets in each region covered by the latest Global Commercial Property Monitor Q4 2021:
Real estate professionals in the UK report positive movements in investment trends during Q4, with capital value expectations over the next twelve-months rising across all sectors. This is most notable in the industrial sector, with a net balance of +84% of respondents expecting prime industrial values to increase and respondents projecting industrial rents will rise by around +7%, the strongest expectations returned since this series was formed in 2014.
Prime office value expectations over the next year increased with a net balance of +24% respondents now anticipating a pick-up (the strongest reading since Q4 2019). As COVID restrictions are lifted in the UK, 66% of respondents still believe an office is essential to successfully operate. In terms of demand for flexible and local workspaces, 76% of contributors report this is rising, and over 69% reported an increase in space allocation per desk following the pandemic.
“Strength across the UK industrial/logistics market shows no sign of abating, with capital value expectations for the year ahead posting a fresh all-time high across the sector during Q4. Generally speaking, sentiment appears to have largely weathered the uncertainty brought on by the rapid spread of the Omicron variant in recent weeks, although green shoots of recovery that appeared to be emerging in office tenant demand seem to have been dampened for now. Longer term though, it is clear that a majority of respondents still consider office space in some form to be essential to businesses to operate successfully. That said, it appears more flexible or local spaces are very much in favour which could well prove to be a lasting legacy of the pandemic.” – Tarrant Parsons, RICS Economist
Further improvement in expectations over the next twelve months are reported from respondents in North America, with capital value and rents now projected to see stronger growth than last quarter.
Sentiment for commercial property market across the US has improved noticeably during Q4, with the figure (+13%) being the strongest reported in the country since Q1 2016, driven by a marked acceleration in growth from both occupiers and investors. Canada, however, sees a slight decline in commercial property sentiment (down to +5 from +12 in Q3), possibly due to the spread of the Omicron variant knocking occupier demand somewhat, particularly in the office and retail sectors.
Sentiments from Asia Pacific remain downbeat at an aggregated level, coming in at -12 compared to -10 in the previous quarter. Though improvements can be seen in New Zealand and Australia, which returned to positive readings, and a less negative outturn in Singapore, sentiment in China and India worsened slightly since Q3.
At a sector level, investor demand for industrial properties remains the strongest across the region at +15% net balance, the fifth consecutive positive outturn. The retail sector had its least negative result in Q4 at -20%, since the onset of the pandemic, with respondents in India suggesting capital values to rise by 3%. Appetite for data centres remains strong across the region (and elsewhere) as well, with the APAC aggregates pointing to solid growth in both, capital values and rents over the next twelve months.
Middle East and Africa
Both, occupier and investment sentiment moved out of negative territory across the Middle East and Africa in Q4. The latest reading of +6 for investment sentiment (up from -8 in Q3) is the strongest reading since 2014, bringing an end to the sequence of twenty-six quarters of negative returns. The UAE also sees the first positive reading in commercial property sentiment since 2015 with the sentiment index rising to +8 from -2 in last quarter. In terms of the occupier sentiment, the reading of +3 represents the strongest figure for the series going back to 2014.
Capital value expectations over the next twelve months also increased across the board during Q4, with prime industrial, prime retail, multifamily residential and data centre leading the way and expected to post capital value growth of 5% or more in the year to come.
“At the aggregate level, MEA saw arguably the strongest improvement in sentiment compared to all world regions during Q4. Driving this, investment enquiries are now reportedly rising across all market sectors, with Saudi Arabia in particular seeing a strong trend in investor appetite emerging. The turnaround evident within the UAE is also noteworthy, with investor demand now appearing to have more momentum than at any other point since 2014 as the market finally seems to be on a recovery path following a challenging few years. That said, conditions remain difficult across some parts of the region, and the pandemic still of course has the potential to knock confidence going forward if developments were to take a turn for the worse.” – Tarrant Parsons, RICS Economist
Results across Europe point to a continued improvement in sentiments with investment sentiment seeing further improvement particularly, rising from +5 to +10 this quarter at an aggregate European level. A net balance of +20% of respondents reported an increase in investments enquiries at the all-property level this quarter as well, representing the strongest reading since the closing stages of 2019. At a headline level, respondents projected values to rise during 2022, particularly increasing in in both office and industrial sectors between Q3 and Q4.
With capital value expectations rising in the office sector, majority of respondents across Germany and France consider office space as essential for business to operate successfully. However, feedback also indicates more flexible or local office space attracting strong demand growth across Europe. Respondents in the continent also indicate that offices are being repurposed for other uses, with almost all contributors from Austria and Switzerland taking this view and more than 90% from Germany.