The preliminary Q1 2012 transactional numbers are in and they show a subdued start to the year compared to the end of 2011. However, the quieter first quarter is on the back of further upward revisions to our 2011 Global Capital Flows.
The fourth quarter of 2011 turned out to be the busiest quarter of the year, even though it marked the time of greatest uncertainty in the global economy with the sovereign debt crisis in Europe at its peak. Our final Q4 2011 volumes have reached US$112 billion, an upward revision of US$10 billion on our previously reported figures. This helped 2011 become the fourth most active year on record at US$418 billion. It is maybe no surprise then that the first quarter of this year has got off to a slightly quieter start. Our preliminary numbers are indicating that US$75 billion worth of commercial property was traded in the first quarter of 2012. The US$75 billion is also slightly lower than the first quarter of 2011, when significant one off deals in the UK and Brazil in particular increased transactional activity significantly. So what do we expect for the remainder of 2012?
The last two years has been all about investors deploying capital into the large, liquid cities of the world such as London, New York, Paris, Hong Kong and Tokyo and searching for the best assets in these cities. This has inevitably had an effect on pricing with yields compressing significantly, particularly in the retail and office sectors. Given the more limited stock available in prime markets and with the global financial system in better shape, we expect an increase in transactional activity in secondary markets and more portfolio deals as we move through 2012.
This improvement will not be synchronised to any great degree globally, but the injections of liquidity that we have seen from central banks are beginning to have an effect, with debt financing slowly improving, although it is still more difficult in Europe than in other regions. While many banks have been focusing on disposing of their non-performing commercial property loans, we believe there will be a greater supply of direct commercial property from this source in 2012.
Given this outlook we have maintained our forecast that volumes will be around the 2011 levels of circa US$400 billion. For volumes to dramatically outperform 2011 we would need to see the debt markets improve significantly, including CMBS issuance outside of the US, which the preliminary results of 2012 are not indicating has occurred to any great degree, yet.
About the author
David Green-Morgan is Global Capital Markets Research Director, based in Singapore.