Governments have taken extraordinary measures to jolt the global economy back to life and their efforts are working, according to a new report by Chicago-based brokerage Jones Lang LaSalle. The worst of the worldwide commercial property meltdown is over, the report concludes, and momentum is on the side of recovery.

Through September, global corporate debt and equity issuance reached $4.2 trillion, an increase of 35% over the same period in 2008, a pace that could set an all-time annual issuance record, according to the market study.

In another promising sign, across Europe 30% of major markets reported an increase in leasing levels and improved stability of office rents for the third quarter of 2009, compared with the second quarter.

Transactions also rose in Europe, with direct investment reaching 18 billion euros ($26.9 billion) in the third quarter, a 40% increase over the second quarter.

The unprecedented level of global government support aimed at restoring liquidity in the credit markets and invigorating demand has effectively halted an economic free-fall, the authors conclude. Steps have varied from stimulus packages to spur consumer spending to bolstering banks and insuring financial institutions against defaults.

“The recovery is being led by emerging markets — particularly in Asia-Pacific [regions] and most notably China,” says Josh Gelormini, vice president with Jones Lang LaSalle’s capital markets group. However, the U.S. in some respects has not kept pace in the recovery.

Meanwhile, China is rising in importance with regard to its commercial real estate markets. Transaction volume has surged over the past two quarters and prices are rebounding sharply. “China is also becoming an important source of capital for real estate investment globally,” says Gelormini. One example of that is China Investment Corp.’s recent decision to invest $2 billion in three U.S. funds focused on distressed assets.

Looking ahead, analysts expect China to continue to gain in importance on the global real estate map as its own market becomes more developed, and as the country grows as a source for real estate investment capital.

Losses become less severe

In some cases, the encouraging signs are not so much positive gains in commercial real estate activity but rather less steep declines than in previous months. For instance, in Tokyo, rents declined 14% in the second quarter compared with the first quarter. But the rate of decline slowed to 9.7% in the third quarter.

The slowing decline in rental rates was even more dramatic in Hong Kong, where rents dropped 13.4% in the second quarter and just 1.5% during the third quarter of 2009.

In the United States, declines in office rents and net absorption were also less severe in the third quarter than in the second quarter. Gross asking rents declined 8.6% during the second quarter and dropped just 1.9% during the third quarter.

But the fundamentals also showed signs of the distress that has plagued the U.S. office market during the recession and capital markets crisis. Total net absorption was negative 14.7 million sq. ft. in the second quarter, and improved to negative 9 million sq. ft. in the third quarter. Vacancy rates continued to rise as new inventory was delivered in several markets where net absorption already was negative. Overall vacancy reached 17.7% in the third quarter, according to Jones Lang LaSalle’s report.

In transactions as well as in commercial real estate fundamentals, the U.S. ranks behind Asian countries and Europe in its recovery. “In terms of capital markets transaction activity, the U.S. is lagging the global economy,” says Gelormini. When it comes to major institutional investment destinations, the capital markets are recovering only very gradually in the U.S.

Among the reasons for the lag, debt capital for large purchases is hard to get and is generally expensive with very tight underwriting. Although property price levels have dropped enough to become quite attractive, most institutional investors are proceeding with caution in their return to the market. Concerns about still-deteriorating fundamentals and the prospects of a generally weak recovery with respect to employment and consumer spending are prompting caution among U.S. investors.

Have we hit bottom? Beginning in this current fourth quarter, new markets will be added to those that have bottomed out in terms of occupancy and rental rates, says Gelormini. By the second half of 2010 or the first half of 2011, the majority of countries will likely have bottomed out and begun their recovery, as demonstrated in their real estate fundamentals.

Employment levels, consumer spending and international trade trends over the next couple of quarters will determine the pace of improvement in office market fundamentals in 2010.

For investors, continued healing of financial markets, quicker recognition of losses on the part of lenders and recapitalizations — likely led by activity among publicly-traded REITs — along with an increase in new lending among banks and increased confidence among institutional investors will determine the pace of improvement in sales transactions.

By the end of 2009, it’s likely that the worst will be over, according to the new study, and 2010 will bring improvement in the form of even less severe market declines and outright recovery at varying paces in countries around the world.