2010 Global Market Report

Commercial real estate markets around the world experienced the full impact of the global economic recession in 2009, according to the 24th annual Global Market Report released today by NAI Global. Rising vacancy rates and declining rental rates were evident in virtually every market sector and geography, with weak demand and a growing supply of sublease space further eroding market fundamentals.

After a turbulent 18-24 months since the market peaked, 2009 marked a year where transaction volume nearly came to a standstill as corporate tenants waited for clear signs of recovery and investors remained on the sidelines waiting for signs the bottom has been reached. As the year progressed, government intervention in the form of stimulus packages in the U.S., Europe and parts of Asia took hold and by year’s end many markets had begun to stabilize. However, with U.S. unemployment topping 10%, consumer demand and spending power at their lowest levels in decades and international manufacturing and trade proceeding at a crawl, the global recovery will take some time to truly stimulate economic growth.

“The past year was extremely challenging for commercial real estate, and we don’t anticipate much new demand in 2010,” said Jeffrey M. Finn, President & CEO of NAI Global. “We’re working with our corporate clients to help them take advantage of the current tenants’ market to reduce their long-term occupancy costs. Many tenants are able to negotiate more favorable lease terms today in exchange for a longer commitment. This ‘extend and blend’ practice is a trend we see continuing well into the next 18-24 months.”

Investors who have been sidelined by economic uncertainty will see tremendous acquisition opportunities in the coming year as banks and financial institutions clean up their balance sheets and move more aggressively to dispose of commercial real estate loans and financially distressed real estate assets, said Finn.

“The recession has been over for six months and job growth is just months away, but the fact remains it will be impossible to predict what will happen next,” added Dr. Peter Linneman, NAI Global Chief Economist and Principal at Linneman Associates. “With significant tax, healthcare and regulatory proposals still in the offing, there is little clarity as to the ultimate outcomes or costs. We’re concerned with commercial mortgage delinquency rates as they have been on the rise and could keep the commercial real estate industry in neutral for several more months.”

While the United States, parts of Europe, the Middle East, Asia and Latin America experienced a deep recession, some economies survived 2009 nearly intact. Brazil, India and China all experienced a slowdown in economic growth, international trade and manufacturing demand, yet continued to post positive GDP growth for the year, far outpacing their neighbors and global trends. Brazil is looking for increased activity in the commercial real estate sector, specifically in big cities like Rio de Janeiro, which will soon host the World Cup and Olympic Games. At the end of 2009, China began to see a sharp rise in foreign direct investment in its manufacturing sector, and is expected to post 9% GDP growth in the coming year. India is positioning itself as a leader in logistics and manufacturing, and though commercial property markets will remain soft in the short term, significant growth is expected over the longer term.

The 2010 Global Market Report includes market data for more than 200 markets worldwide. For more information, contact us at 412.321.4200.

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