Global real estate investment volumes are expected to hit USD1.39 trillion in 2017, according to Cushman & Wakefield’s The Atlas Summary 2017.
Of this amount, Asia Pacific accounts for 44% (USD611 billion), followed by North America (34%; USD470 billion) and EMEA (22%; USD307 billion). The annual report, which analyzes and predicts future trends in real estate investment activity across the world states that investment demand for real estate will continue to be active in 2017, driven by new capital sources and more investors seeking global diversification. In addition, demand is expected to outstrip supply of real estate available for investment, a dynamic that is likely to keep pricing elevated well into the foreseeable future.
David Hutchings, Head of Investment Strategy for Capital Markets, EMEA said, “The real estate investment market will be even more dynamic in 2017/18, with capital sources changing and targets evolving as opportunities emerge across the world. Many investors continue to chase income and a return on their capital, but for some others, it is simply a return of their capital which is of greater concern in an uncertain and changing world. Perceptions of risk and attitudes towards pricing are very different between these two groups but given the uncertain economic environment, global diversification in real estate will remain a favoured strategy.”
The Atlas Summary 2017 report also highlighted the following:
- Many investors will remain heavily focused on core cities in 2017 as they seek to ride out risk and build liquidity and longevity into their portfolios.
- For investors seeking growth or higher returns, new areas will be in demand and this may include new risks in core markets, Tier 2 markets in leading countries or new and selective geographical targets including some emerging markets.
- Stronger interest in new segments and styles of investing in all regions is set to grow as the typical investment portfolio becomes more diversified to reflect changing trends in demographics, technology, mobility and urban function. Some of these new asset classes include those with a residential focus (e.g. retirement homes), data centers, urban logistics and leisure.
Asia Pacific is expected to see positive volume growth continue in 2017, with good economic performance sustaining investor interest and delivering a steady increase in demand for modern commercial space from local, regional and global investors.
Core and core plus strategies will continue to target Japan and Australia but with limited supply, stronger demand is also likely in core cities in China, Singapore and South Korea, as well as core-plus markets such as Taipei, Auckland and secondary cities or decentralised markets in core cities such as Sydney. Emerging markets also have potential to gain interest, including investment in local platforms in China to take advantage of any stress or over-leverage among developers or looking at growth in key Indian centres.
North America will be in the spotlight in 2017, with a historically strong level of activity in the USA driven by somewhat reduced but still high levels of confidence in an enhanced Trump-led economic expansion and rising values underpinned by the occupier market. However tight supply and higher pricing may mean investment volumes fail to match the pace of the last two years. The more advanced nature of the US cycle together with returning inflation will drive interest rates and hence keep the dollar high; attracting more investment capital if the economy is performing in-line with expectations. There will be headwinds however, from policy uncertainty, rising borrowing costs and a bottoming out in vacancy as development increases.
Core cities with liquidity and economic growth will continue to attract most buyers, led by New York, Chicago, LA and Boston with Washington set to feature as political change drives activity. Tier 2 cities and well-connected decentralised markets around gateway cities will see enhanced performance and core-plus interest should focus on mixed-use assets in growth cities such as Miami, Atlanta, Austin, Denver, Phoenix, Charlotte and Seattle.
In Europe, a combination of steady economic growth, modest inflation and low interest rates augurs well for the occupier market in the best performing locations. Investment continues to flow from all areas of the world but volumes have fallen in the main due to limited supply and ongoing risk aversion. Overall, Asian capital will continue to spread to new markets in Europe, surpassing North American capital as the largest source of inward investment in 2017 or 2018.
The key areas offering well-balanced growth look to be Germany, led by Berlin, as well as the Nordics, followed by Spain, notably in Barcelona and Madrid. Paris will also continue to outperform France as a whole and subject to how the election develops, should be a target for investment, helped by its depth of infrastructure spending. Similarly, London will remain a magnet for capital and with the impact of Brexit only likely to be apparent in the medium-term, current fears of an imminent marked slowdown have been overstated.