Driven by strong momentum in the US, global commercial investment flows are approaching record highs.
In its Global MarketFlash survey of November 2018, CBRE takes stock of recent developments in the commercial real estate investment market across the world’s major regions: the Americas, Asia Pacific and Europe, the Middle East andAfrica. Firstly, the annual volume of transactions worldwide has now reached an average of one trillion dollars over the past three years, which is five times the volume recorded at the bottom of the crisis in 2009.
According to Richard Barkham, Chief Economist at CBRE: “Although interest rates are slowly rising, global growth remains strong and investors are still very involved in real estate. We see innovation advancing in all areas of the real estate industry, including the exciting changes currently taking place in the office sector, leading to new investment strategies. “
The proliferation of mergers and acquisitions in real estate since
several years ago is a perfect illustration of the growing appeal for investors. More recently between January and September 2018, some 725 billion dollars were invested in the world, an increase of 3.6% compared to 2017 over the same period the previous year, despite a third quarter slightly down (-1.2%).
In addition, the proliferation of mergers and acquisitions in the real estate sector for several years is a perfect example of investors’ growing attraction for real estate in the current cycle. Witness the purchase of GGP, the second largest owner of shopping centers in the United States, by the US giant Brookfield this year for $ 15 billion.
The US market, which accounts for more than half of global transactions, boosted overall year-over-year growth in the third quarter (+ 17%). Among the most popular asset classes, note the good performance of the hospitality sector (+ 23%) and the residential sector (+ 14%), the latter being supported by a favorable demographic context.
In a context of compression of the capitalization rate, so-called “opportunistic” investors are starting to show a greater appetite for assets located in secondary zones, in search of higher returns, which is symptomatic of an end of cycle position. According to broker Kale Realty, the Illinois and Chicago real estate markets in particular currently attract a lot of foreign capital due to its undervaluation compared to the rest of the nation.
Finally, it is interesting to note that Switzerland accounts for a sizeable share of foreign capital flows to the United States, with an annual growth rate of more than 50% in 2018. Often they look for undervalued properties where they can improve the value with home improvements like landscaping and renovations.
In the Asia Pacific real estate markets which account for about 13% of the global market, capital flows have decreased by 9.7% since the beginning of 2018, although New Zealand, Taiwan and Hong Kong showed solid growth. Nevertheless it is rather in China that investor sentiment has been somewhat affected, anticipating further trade tensions with the United States. In addition, the increased volatility of the stock markets, coupled with a less favorable credit environment and higher mortgage rates, could hamper real estate capital flows within the Asia Pacific region in the coming months.
Capital invested mainly flocked to the UK, France and Germany. In Europe, the Middle East and the Africa zone, commercial real estate investment has totaled US $ 250 billion since January 2018, posting its best result in nine months.
The capital invested flows mainly to three main countries, namely the United Kingdom, France and Germany. It benefits from the strength of the residential and office markets in its five largest cities, while the French market remains dependent on a concentration of activity in its capital.
Even though the uncertainties surrounding the Brexit negotiations remain in the United Kingdom, with investment volumes edging down only 4% since the beginning of the year, while London continues to attract capital from around the world.