However, the rate of growth in Euroland (the 15 common currency nations) will lag behind that of both the UK and the US. Incremental improvement in market conditions is therefore anticipated. Strong local dynamics have nevertheless created commercial and real estate hot-spots, particularly Paris where economic and real estate factors conspire to create an intense investment sector.
The multi-nation accession of eastern countries to the EU in 2005 is already stimulating enhanced cross-border capital flows and the real estate markets will benefit accordingly.
Most office markets around the globe have stabilized as 2003 draws to a close, raising hopes among property owners and investors that the three-year downturn is ending. This optimism is based largely on the economic recovery that appears to be taking root in the United States, interest rates that remain low, and the absence of widespread overbuilding in most markets. Adelaide Property Valuers Vacancy rates have risen virtually everywhere in the past three years, dragging rental rates lower and prompting landlords to increase concessions in order to attract and keep tenants.
But low interest rates and a generally poor outlook for equity and fixed income investments have increased investor demand for office properties, particularly prime assets with long-term leases to creditworthy tenants. Demand for properties fitting this profile has been strong enough to push down yields despite falling rents and occupancies. This has raised fears over an asset bubble along the lines of the technology bubble that burst in 2000, slowing growth throughout the world over the past three years.
Most analysts, however, dismiss these concerns, noting that investors simply are willing to pay up for secure income streams in a low-inflation, low-return financial environment that is vastly more subdued compared to the 1990s. As the global economy gains momentum in 2004, take-up activity should increase while rents should remain stable. This should help compensate investors for rising interest rates, which are likely to dim the returns available through leverage.