CB Richard Ellis Group, Inc. Office indices point to global rent growth and increased capital values
CB Richard Ellis Group, Inc. (CBRE) today published its CBRE Global Office Rent Index and CBRE Global Office Capital Value index. Both indices point to continued recovery for the worldwide office real estate market.
The CBRE Global Office Rent Index has expanded for the second quarter in a row, rising 4.3% year over year in Q1 2011 following a rise of 2.4% in Q4 2010. The CBRE Global Office Capital Value Index expanded 12% year over year in Q1 2011 and has been in recovery mode for a year now.
“The fact that capital values have rebounded ahead of rents, reflects several factors, including the deeper integration of commercial real estate into the global capital markets, risk aversion that has driven investors into core assets, attractive pricing of real estate relative to other assets and the availability of favorable financing in the U.S.,” said Dr. Raymond Torto, CBRE’s Global Chief Economist.
CBRE Global Office Rent Index
The CBRE Global Office Rent Index shows that office rental growth is taking hold globally. The Q1 2011 increase was powered by Asia Pacific, which showed an 11.3% year over year change. The EMEA region also showed positive rental increases, albeit more muted than Asia Pacific, at 2.5%. EMEA had also earlier experienced a more moderate descent from its peak. Across the Americas there was essentially no change in rent levels year over year.
The Index has been trending higher globally for four quarters, following seven quarters of declines as a consequence of the Great Recession. The CBRE Global Rent Index fell a cumulative total of 17% from its peak at the middle of 2008. At its peak the Rent Index was 119 and today, after some recovery it is at 104. Seen in this light, the recent gains are a sign of improving global office market health, but certainly not a return to previous levels of rents.
While economic conditions vary globally, most economies are improving, albeit slowly. With little in the way of more supply of office space coming into the market due to new construction, particularly in EMEA and the Americas, the CBRE Global Office Rent Index is expected to continue rebounding modestly through 2011, even in the face of continued economic headwinds, such as the sovereign debt crisis. Asia Pacific is seeing a growth of about 5% or greater in its office inventory, so some of these positive rent changes may be tempered in coming quarters.
CBRE Global Office Capital Value Index
While the leasing market is just starting to recover, the CBRE Global Office Capital Value Index has been increasing for the past four quarters. The year over year change accelerated from 2% in Q2 2010 to 6% in Q3 2010 to 10% in Q4 2010 to 12% in Q1 2011
The upturn in capital values is again led by the recovery in values in the Asia Pacific region. The EMEA region has seen more muted positive changes while the Americas recovery had been tepid prior to Q4 2010.
Dr. Torto added, “Clearly, the capital markets are anticipating higher future leasing rents in the Americas, reflecting what some call a disconnect between capital values and rent performance for the past two quarters. It also could be characterized as an expectation for improved property fundamentals.”
The CBRE Office Capital Value Index for the Americas has shown two strong quarters in Q4 2010 and Q1 2011 with a 6% and 9% year over year change, respectively. In contrast, the CBRE Office Rent Index for the Americas was negative in Q4 2010 and at essentially zero change in Q1 2011.
The CBRE indices were created by CB Richard Ellis Research and are comprised of data from 123 cities around the world. The base period for the indices is Q1 2001.
To speak with a CBRE expert, please contact Robert McGrath (212.984.8267 or Robert.McGrath@cbre.com).