Strong Demand Awaits Commercial Properties

April 12, 2011 / Elizabeth Buckley, Commercial Property Analyst

Demand for commercial properties is expected to increase as investors clamour to buy more because of high yields promised by the sector.

Strong Demand Awaits Commercial Properties

Investors gained confidence in some markets and tenant demand levels improved in certain areas after Standard Life Investments, a Europe-based asset management firm, predicted a double-digit growth for commercial real estate markets for the next months.

Standard Life Investments head of real estate investment, David Paine, stated that as a result of the optimism, vacancy rates in commercial properties are falling and strong rental growth is being recorded in some of the highly cyclical supply-constrained office markets such as Hong Kong, Central London and Paris.

Capital Economics economist Ed Stansfield added that as long as the commercial property in question is deemed to be well-let, in a good area and is regarded by people as being prime, demand for it will be fairly healthy.

However, he also said that buyers may be holding back from investing a little at present. The outlook for commercial property is that more people are worried about the downside risk than the upside risk of investing. Investors are expected to first observe what interest rates will do and what effect government cuts will have on occupier demand before making any decision.

In addition, commercial mortgage-backed securities (CMBS) are also looking up. The US CMBS closed the first quarter this year with some $8.7 billion of new offerings, which put it on par with the 2000 and 2002 statistics when annual volume hit $46.9 billion and $52.1 billion, respectively.

Five-year and 10-year mortgage rates for commercial properties at present are also 0.25 percent lower than on Jan. 1, another good news.

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