All regions across the globe experienced a slowing of office property sales volumes in the first quarter of 2016 compared with the same period in 2015, new research shows.

It was inevitable that the marked increase in capital markets volatility we saw at the beginning of the year would impact transactional volumes, as it had done at the end of 2015, according to the report from international real estate firm JLL.

However, the speed of decline has accelerated since the fourth quarter of 2015 when year on year volumes were 8per cent lower but while US activity took a breath, sentiment remains positive, the report points out.

Overall in the first three months of 2016, global activity totalled US$133 billion, some 14per cent lower than a year ago and the weakest start to a year since 2013. But the report points out that the first quarter of 2015 was the strongest start to a year in the current cycle.

Regional volumes in the Americas were down 16per cent year on year at US$61 billion in the first quarter with the US mirroring this fall-off in activity. Commercial Mortgage-Backed Securities (CMBS) spreads and swaps rates peaked in the middle of February but have since declined, encouraging activity and a more positive sentiment in the second half of the quarter.

Elsewhere in the region, Canadian volumes were more or less flat but activity in Latin America was exceptionally weak at just US$210 million.

Europe is being affected by politics with the UK’s future in the European Union being decided in a referendum on 23 June and Spain about to have a general election, so the report says that it is perhaps a surprise that European volumes have dropped by just 15 per cent year on year to US$48 billion in the first quarter.

‘The UK and Spain are in the eye of the storm politically at present, and investment activity has reflected this nervousness with volumes down 34per cent and 28per cent respectively. French volumes were also down by 24per cent, whereas Germany performed better with a fall of just 8per cent. There were other bright spots though, with volumes rising in the Nordics, Benelux and the CEE,’ the report says.

There was a mixed picture in Asia Pacific as the biggest markets move in opposite directions.
Asia Pacific volumes for the first quarter were 5per cent lower on 12 months ago at US$24 billion. Australia, China and Hong Kong were higher than a year ago, while Japan was 26per cent lower.

Activity in South Korea bounced back from the first quarter of 2015, whereas Singapore had one of its weakest quarters on record at just short of US$700 million. Most of the region’s emerging markets registered lower volumes.

‘The heightened levels of volatility and risk aversion experienced in the first four to five weeks of 2016 combined with what is always the quietest quarter of the year to make the results for the first quarter of 2016 look quite weak,’ the report explains.

‘Nonetheless, recovery has been particularly rapid; equity markets are back to November 2015 levels and credit spreads have narrowed again. A sizeable amount of capital remains unspent across all investor types and we expect this to be deployed as we move through the year. Politics looks set to form the major backdrop in 2016 from Chinese regulators to UK referendums and US elections; their impact on real estate is difficult to predict especially if the outcomes remain unclear,’ it says.

‘Uncertainty usually results in a slowing of market activity, which we are already witnessing in the UK and with Chinese outbound activity. However, politics also has the potential to spur activity and, at this point, we expect 2016 activity to be broadly in line with 2015, with a central scenario indicating that volumes could be about 5per cent lower,’ it adds.

The report also says that in the majority of major office markets, yields have remained stable, but the direction of travel is still downwards with the mean prime office yield across 21 major office markets compressing to 4.8%, down 20 basis points on a year ago. Europe registered yield compression in several markets during the first quarter of 2016 including Stockholm down 25 basis points, Madrid also down 25, Brussels down 10 and Milan down 10.

Capital value appreciation on prime assets across 26 markets has held broadly steady at 8.7per cent year on year. There has been particularly strong capital appreciation over the past 12 months in Stockholm, Madrid, Dubai, Sydney, Los Angeles and Tokyo.

Annual capital appreciation is expected to slow to about 4 per cent in 2016, driven primarily by income growth. In Europe, star capital value performers this year are likely to be Madrid, Stockholm and Brussels. Tokyo and Sydney should top the performance ranks in Asia Pacific, while Boston, Chicago, Los Angeles and San Francisco are projected to outperform in the Americas.