Following the significant decline in commercial property values around the world last year, many real estate investment companies opened opportunity funds, aiming to raise more than US$90 billion (Bt3.2 trillion) for global investments by the end of January - a figure equal to about 25 per cent of 2008 transaction volumes.
Research by Jones Lang LaSalle's global market perspective this month found that commercial property yields around the world currently exceed 7 per cent. So funds that raised capital in 2008, but delayed investment due to the market turmoil, are coming under increasing pressure to invest or return the capital.
Although a number of factors may constrain their investment programmes, opportunity funds are likely to bolster transaction volumes in 2009.
Many major corporations around the world are accelerating their responses to the economic downturn by initiating new workforce reductions or expanding existing programmes. This trend is expected to continue through most of 2009 at least, and this "right-sizing" of companies will translate into a reduction in demand for space and an increase in sublease space this year and next year.
As vacancies increase, both market-wide and in internal shadow space, and as rents decline in property markets around the world, corporations without a focused strategy will be challenged in the near term to effectively and efficiently dispose of excess real estate.
Rightsizing also is likely to prompt more corporations to outsource non-core businesses such as real estate in their search for additional cost reductions. For confident tenants with upcoming core and strategic facility requirements, the markets will present very appealing opportunities in the next 12 to 18 months. The high cost of raising money in the corporate bond market is likely to lead to sale-leasebacks of high-quality assets.
While the factors affecting global property markets will likely get worse before they get better, several indicators point toward movements that will potentially mitigate declines. One of these is the wave of massive economic stimuli that are being injected by governments around the world, most notably in Beijing, where the government is committed to doing all it can to stem the tide. The credit markets, which led the global economy down, hopefully will lead it back up.
The value declines in the UK have made it one of the world's most attractive markets, with yields above 8 per cent - albeit with a host of economic risks. This trend of equity investor interest is now beginning to filter slowly to the United States. As we move through a year of adjustment in 2009, it is worth remembering that there is a distinction between distressed assets that have occupancy problems or capital expenditure needs and distressed owners who have urgent needs to raise cash and will sometimes sell strong assets as well as weaker ones.