Commercial Property: The state of the sector in four graphs

An unprecedented set of macro factors exerted an understandably depressive effect on sentiment across the sector in 2020. However, by year’s end, some shafts of light were breaking through the clouds.

Global Commercial Property Sentiment Index

By Q2 2020, the COVID-19 pandemic had dragged global sentiment down to its lowest levels since the midst of the Global Financial Crisis in 2009. Since then, the picture has changed, albeit modestly. Any apparent improvement in the mood seen over H2 2020 shouldn’t be overstated; the ten-point climb still leaves the index at -27 globally. But in the context of such a distressing year, nor should it be understated. Interestingly, according to the index, sentiment in Europe currently mirrors the global mood exactly. It remains to be seen whether the troubled vaccine roll out across the EU27 will weigh on European attitudes in Q1 2021.

Commercial Property Sentiment by Country

A look at the country-by-country breakdown reveals the modestly more positive global sentiment is broadly consistent across borders. There are, though, some notable exceptions to the trend. Between Q3 and Q4, the mood didn’t change at all in Japan, while in China and Italy, it darkened once more. India, New Zealand and Canada are among a clutch of countries reporting strongly rebounding sentiment. Hong Kong is the most depressed of all surveyed territories. This dubious honour is largely unrelated to the pandemic, having been theirs with virtually unbroken continuity since the onset of political unrest in summer 2019.

Cross-border Investment Enquiries

Overseas investment appetites remain in negative territory, but as with overall sentiment, rallied for successive quarters after the Q2 nadir. The structural issues stressing the retail sector pre-date the pandemic but have been further compounded by the events of the last year. Industrial, the strongest performing sector throughout the year, crept back into positive territory in Q4. Will this momentum carry forward into 2021?  

Perceptions on Phase of the Cycle

All of the above naturally leads on to the question of where in the cycle the market now finds itself. It has been a year since the major western economies locked down. Back then, most commentators pinned their early hopes on a sharp, “V-shaped” recovery. At the time, RICS Chief Economist Simon Rubinsohn was an outlying voice cautioning that such optimism was misplaced. He has since been vindicated in his assessments. There is only now a sense that the recovery phase is imminent, perhaps even underway – though that remains far from the majority view. The proportion of respondents estimating the cycle to be in a downturn fell from two-thirds in Q3 to just over half in Q4. Crucially, over a quarter of all respondents believed the market to be upturning by year’s end.