Los Angeles, June 6, 2011 – CB Richard Ellis’ (CBRE) new Global Capital MarketView Report shows that capital investment values are increasing globally, with the CBRE Global Office Capital Value Index increasing 12.0% year over year in the first quarter of 2011. The report analyzes global capital environments across Asia Pacific, Europe, Middle East and Africa (EMEA) and the Americas, including office capital value trends, development completions, debt financing availability, global investment volumes, cross-border capital flows and yield spreads.
“Our report finds that rising global capital values are continuing to be led by the strong recovery in values in the Asia Pacific region, an expectation for improved property fundamentals in the Americas and moderate positive change in the European markets,” said Dr. Raymond Torto, CBRE’s Global Chief Economist.
Findings in the report include:
Global Capital Value Trends: Office
The CB Richard Ellis Prime Office Capital Value Index for Asia Pacific increased a significant 18.9% year over year—the largest increase since Q2 2008 and twice the next-largest increase for the period, which was in the Americas.
In the EMEA region as a whole, capital values started to recover in late 2009, but these increases concealed a wide differential in trends at the city level. For example, office rental value growth has proven more robust in London and Paris than elsewhere in the region.
Capital Values in the Americas have mainly increased in the major markets such as New York, Washington, DC, and San Francisco; in particular, values have increased for the prime product.
Debt Financing Availability
For the Asia Pacific region, the issue is not the availability of debt, but rather, its cost. Spreads between interest rates and cap rates are already remarkably tight, and with rising inflation, there are concerns about the potential for interest-rate increases.
For the EMEA region, the limited number of active lenders has hindered growth in investment activity. The debt capital constraints, together with higher interest rates in the Eurozone, are restraining transaction activity in EMEA. Nevertheless, EMEA’s sales volume grew 35.4% year over year in Q1 2011.
The commercial mortgage market in the U.S. is recovering; CMBS issuance this quarter alone nearly reached the level recorded during the entirety of 2010.
Global Investment Volumes
Transaction volume in Asia Pacific as a whole rose 5.5% year over year to US$21.3 billion in Q1; however, there was a large variation in activity across the region, with an increase of 14.9% in Asia and a decrease of 44.8% in the Pacific region, year over year.
Despite the European debt crisis, the commercial real estate investment market in the EMEA region had a solid quarter, with transaction activity amounting to US$41.9 billion.
The Americas’ economies continued to improve in the first part of 2011, albeit slowly. High unemployment levels in the U.S. are still a major concern, and until we see employers increasing their hiring, the recovery remains fragile.
Cross-Border Capital Flows
Since the global financial crisis, Asia Pacific has emerged as a key target for cross-border global real estate investors. The high economic growth witnessed through most of the region during the recovery is now translating into strongly rising rents and values, especially for Hong Kong, Singapore and China.
Despite the strong growth in investment market turnover that has been recorded in the EMEA region over the past two years, cross-border capital flows have not been increasing markedly and comprise approximately one-third of total market activity.
While the majority of transactions occurring in the Americas are domestic, cross-border transactions in the region in Q1 2011 showed strong growth, with a 50.3% year-over-year increase. The vast majority (93.9%) of cross-border acquisitions in this region occurred in the U.S., with these transactions increasing 141% year over year in Q1 2011.
The spread between cap rates and long-term nominal interest rates in Asia Pacific continued to fall in Q1 and remains the tightest of all the global regions.
Within the Eurozone, the difference between the various countries’ government bond yields has increased enormously, but in most cases for reasons that are not relevant to the pricing of real estate.
Interest rates in the Americas remain abnormally low. There is no intention by the Federal Reserve to increase short-term interest rates anytime soon due to the pace of the economic recovery.
To speak with a CBRE expert, please contact Robert McGrath (212.984.8267 or Robert.McGrath@cbre.com).
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CB Richard Ellis Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2010 revenue). The Company has approximately 31,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CB Richard Ellis offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our Web site at www.cbre.com.