gE Blog Series: Global Real Estate Part 2 - Commercial Real Estate

In today’s blog post for the Global Real Estate Series, we will be looking at the commercial market for real estate, including key aspects of the industry as well as future outlooks. The market for commercial real estate is comprised of office, industrial, and retail properties that are intended to generate a profit, either from capital gain or from rental income. Global commercial real estate markets have seen much improved growth recently, up from the lows of a few years ago.

The majority of commercial real estate markets have seen increased growth compared to last year. Jones Lang LaSalle recently released a report that shows steady improvements in the global real estate markets. The study found a 6% annual growth in global office rents compared to 2010. The firm also found that vacancy rates worldwide are down to their lowest point in two years at only 13.6%. The Americas saw the largest progress in the fourth quarter of 2011 with rental growth of 1.2%. European commercial real estate markets even saw growth of .4%, despite a stagnant economy. The majority of global leasing markets are showing remarkable resilience, especially markets in BRIC countries (Brazil, Russia, India, and China). 

One of these nations that has seen astonishing growth in their commercial real estate market is Russia. Investment volume into Russian commercial real estate was the highest ever in 2011, an impressive €4.55 billion. This represents a surprising 200% growth over levels reached in 2010. An increase in confidence in their real estate investment market can be pinned to the stabilization of the Russian economy. Domestic investors control nearly 60% of the market, much more balanced than recent years when Russian money accounted for 70-80% of investments. Another year of record volumes of real estate investments is unlikely to be repeated in the region, as growth in the Russian economy for 2012 is expected to be slightly less than the 4.5% growth seen in 2011.

Experts are predicting that leasing volumes will be steady in 2012, with positive rental growth expected in most major office markets. Beijing, Toronto, and San Francisco are expected to potentially have double-digit increases. Barring significant financial system shocks, commercial real estate investment and leasing volumes are likely to be maintained at 2011 levels with the potential for much upside.