Global Housing Markets Show Further Improvement in Q1: Scotia Economics

TORONTO, May 10 /CNW/ - Global real estate markets continued their gradual convalescence in the early months of 2010, according to the Global Real Estate Trends report released today by Scotia Economics.

"Improved affordability, low interest rates and government purchase incentives have supported a pickup in sales, which is helping to stabilize prices after the broadly based declines of 2008-2009," said Adrienne Warren, Senior Economist, Scotia Economics. "A general sentiment appears to be emerging that residential prices in many of the hardest hit nations are finally bottoming, even if the recovery is likely to be gradual and protracted."

Among the major developed economies for which first-quarter data are available, Australia has taken over the lead from Canada. However, Canada's housing price trend is only fractionally behind Australia's, though the momentum has clearly shifted.

"Average inflation-adjusted home prices were up 16.6 per cent year-over-year in the first three months of the year, down from 19.1 per cent in Q4," noted Ms. Warren. "While we expect activity to remain reasonably buoyant throughout 2010, price pressures should ease further over the course of the year as higher interest rates temper demand and increased listings put the balance of bargaining power back in the hands of buyers."

The U.K. housing recovery is also gaining traction. Based on data for the first two months of the year, real home prices were up 4.2 per cent from a year earlier, compared with a 12-month decline of 1.6 per cent in Q4 and a 15.6 per cent contraction at the start of 2009.

U.S. home prices were almost back in the black in Q1, recording a year-over-year decline of just 1.1 per cent compared with 4.6 per cent in Q4.

"Confidence among buyers is being underpinned by excellent affordability and improving employment conditions," said Ms. Warren. "Nonetheless, the recovery in the battered U.S. housing market will inevitably be slow as additional foreclosed properties come onto the market, leaving price trends on a largely sideways track for the time being."

    Signs of Revival in Commercial and Industrial Markets

According to the report, Canadian office market activity is reviving after a significant slowdown in 2009. Leasing demand is firming up alongside rising office-based employment, strengthening business confidence and improved access to capital. Importantly, sublet space - a leading indicator of broader trends in commercial real estate - is beginning to stabilize, after increasing sharply last year.

"The substantial amount of new supply coming on the market in 2009-2011 will likely push vacancy rates higher in many major centres this year, keeping downward pressure on rents," stated Ms. Warren. "Canada's office market saw roughly 10 million square feet of new space in 2009, the largest increase since 1991."

Retail real estate activity is also picking up, supported by a rebound in consumer spending and brisk housing activity. Vacancy rates have edged up after a record amount of new space was added in 2009, but remain relatively low. Demand for prime downtown space continues to outperform more saturated suburban markets.

"Looking ahead, we anticipate a period of reasonably healthy commercial leasing and sales activity, but with few major new developments breaking ground over the next several years," commented Ms. Warren. "Rather, construction plans will likely be geared more to the refurbishment and retrofitting of existing older space to meet the growing demand for more energy-efficient, smart buildings.

"Meanwhile, any reduction in the pace of new home construction - as we predict for the latter half of 2010 and into 2011 - will in turn dampen related retail expansion, including gasoline stations, grocery stores and big-box malls," continued Ms. Warren.

Industrial property markets mirror the improvement in commercial activity. Rising sales and leasing demand are piggybacking on the recovery in global trade and industrial production, and higher commodity prices.

"Industrial space vacancy is typically more stable than its commercial counterpart, with a greater share of properties purpose-built and/or owner-occupied," said Ms. Warren. "In contrast to Canada's office and retail markets, there was only modest new industrial supply in 2009. There are currently few major new developments under construction or planned for 2010."

Scotia Economics foresees a further cautious improvement in industrial market activity this year and next, with vacancy rates and rents remaining fairly steady. Holding back a bigger turnaround is a significant amount of excess production capacity.

"Despite more recent positive developments in both commercial and industrial property sectors, overall activity is likely to remain on a relatively modest growth track over the next several years," concluded Ms. Warren. "This in turn will reinforce a more subdued residential construction and renovation outlook, and a winding down of public infrastructure spending. As a result, we expect the broad construction sector to make a much smaller contribution to domestic growth and employment than has been the case in recent years."

Scotia Economics provides clients with in-depth research into the factors shaping the outlook for Canada and the global economy, including macroeconomic developments, currency and capital market trends, commodity and industry performance, as well as monetary, fiscal and public policy issues.

SOURCE Scotiabank - Economic Reports

For further information: For further information: Adrienne Warren, Scotia Economics, (416) 866-4315,; Robyn Harper, Public Affairs, (416) 933-1093,

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