No Rebound, but little room left to fall
Global transaction volume continues at a remarkably sluggish rate, accordig real estate market analysts worldwide. Although sales during the second quarter are now estimated at $48.6 b worldwide, a 67 % drop from the same period in 2008, the decline from Q1 2009 volume could be as little as 5%, indicating a bottom has been reached, although there is no recovery in sight.
Quarterly volume projected for the Americas is almost negligible at $8 b, a 6% consecutive drop but an 83 % fall yoy. EMEA is likely to take the most dramatic hit from the first quarter, down 24 % at $17.3 b and 71 % yoy. But with Australia, Japan and China beginning to stabilize, Asia Pacific sales are expected to be positive with an 18 % gain on the prior quarter at
$23.3 b. Thatâ€™s nearly half of estimated global volume and marks Asia Pacificâ€™s first quarterly lead in sales worldwide.
Emerging economies have grabbed a surprisingly robust share of 29% of investment sales this year, up sharply from just 13% in 2007 and 23% last year, although in absolute terms sales volume, like everywhere else, is severely depressed. This activity is largely being carried by local rather than cross-border or global investors, especially in China, where foreign buyers have dried up.
In the Americas, sales in US-linked Brazil and Mexico continue to plunge; in Asia, however, China has begun to stabilize as land sales return. With the exception of nose-diving Poland, Eastern European activity has held up remarkably well, although Russia’s positive 2008 has turned negative so far in 2009. But as developed Western Europe either reaches a bottom
(the UK and Germany) or levels off (France and Spain), will emerging Eastern Europe slip to the downside?
One clue to the vulnerability of the Eastern European theater is in the rapid pace at which assets are falling into distress, up a frightening 982% ytd; in contrast, distress has grown just 69% in Western Europe for the same period.
Whether developed or emerging, declining GDP for different countries bears slight correlation to declining sales volume. In Russia, where GDP has slowed the most, sales volume has fallen 50 %. In Canada, a significant GDP drop was matched by a stark 86 % sales volume plunge; Germany saw a 4% fall in GDP and a 70 % fall in volume.
However, in the US and Australia, where GDPs have declined the least, sales volume plummeted 82 % and 53 %.
The absence of any rhyme or reason in the diverging rates of GDP and sales volume decline among countries refl ects the heavy infl uence of multiple capital-markets variables on a national basis. Constrained debt, for example, has weighed down US and UK transaction markets. However, while serious unemployment has burdened Spain, a 2% drop in GDP has been accompanied by only a 41 % decline in sales volume.
While there has been virtually no difference among property sectors in the rate of sales volume declineâ€”all are down about 72%â€”the growth rate for distress has been far less uniform. Distress has spread ferociously this year for retail property, up 254% and has mounted 183% ytd for land and development sites as investors turn away from assets that not only produce no cash flow but often are big drains on capital. Virtually all other property sectors have seen distress climb at about the same level, between 81% (industrial) and 85% (hotel).
With the rate of decline in sales volume now stabilizing across most theaters and zones, the rate of growth in distressed assets has become critical. As noted above, distress is accumulating at an alarming pace in Eastern Europe, but growing much more slowly in Western Europeâ€”with the very notable exception of the UK, where distress is climbing fast. But at the very bottom of the pack is Australia, where property sales are stabilizing.
This most transparent of markets was among the first to crack globally, but with its relatively strong economyâ€”a fl at GDP being relatively strong todayâ€”and active local investors, Australia could be a leading indicator of a global rebound.