Real estate transaction volumes in 2018 were the strongest on record reaching €1.55th (US$1.75tn); a 4% year-on-year (y/y) growth and surpassing previous highs of €1.49tn (US$1.68tn) in 2017, according to new data from global real estate services firm Cushman & Wakefield. The firm forecasts record levels to be maintained in 2019, in the region of €1.55th (US$1.75tn), as investors target a wider range of markets to find opportunity, and more sellers come forward as real estate strategies adjust to evolving monetary policy, geopolitical tensions and structural change. The Global Investment Atlas 2019 report states that pricing is expected to edge ahead, however, this will be driven by stable yields and steady rental growth for the best assets rather than yield compression which has typified recent years.
Report author David Hutchings, Cushman & Wakefield’s Head of Investment Strategy EMEA Capital Markets, explained: “The economic environment is weaker than expected just a few months ago but so too is the inflation outlook on a global basis. As a result, while risk is up, the day of reckoning on interest rates for corporates and investors has again been delayed. The coming year is therefore set to see a further extension of the property cycle, offering investors another chance to get their portfolio into shape ahead of a period of slower growth. With a stable, contracted income and exposure to growth and inflation, real estate continues to be incredibly attractive and demand remains strong for the right product. However, defining the right product has become ever harder as powerful, market-moving occupier strategies are reshaped by e-commerce, social and business change, low growth and affordability constraints.”
CRE allocations in Europe, Middle East and Africa (EMEA) and Asia-Pacific (APAC) fell 2% and 1% respectively in 2018, the latter largely due to fewer global purchases over the year. European and Asian institutions are, however, increasing allocations to real estate, and both regions are also likely to see more inbound cross border demand, notably, Europe in the short-term, and Asia in the medium-term as investors follow demographic trends.
EMEA investment volumes recorded €293.6bn (US$331bn) in 2018, a 10.8% y/y fall owing to a pull-back from both global and domestic sources and the conclusion of some large portfolio deals. European retail documented its third consecutive year of decline (€49.7bn/US$56bn), with lower volumes across much of the region. Industrial and office transactions also contracted by -24.7% and -9.7% y/y respectively but was likely down to a shortage of investible stock. EMEA investment volumes in 2019, are predicted to reach €300.8bn (US$339.2bn), a 2.5% increase on 2018 levels, driven by increased demand across a growing range of tier 2 cities and new sectors.
Carlo Barel di Sant’Albano, Chief Executive of Cushman & Wakefield’s Global Capital Markets & Investor Services, said: “International capital flows are becoming yet more dynamic, increasingly cross-border and more about balancing quality with quantity – this will be true whether you are referring to stock, yields, talent or living standards. An abundance of capital will continue to drive the market and sustain pricing in 2019, but structural forces, such as e-commerce, will be driving areas of outperformance even as the cycle slows. Hence there is a real need to look beyond market averages to see the detail of the local market, the deal, the vendor, the lender and above all, the user.”
While the USA was the top target for global CRE investment (€39.9bn/US$45bn), EMEA has retained its historical position as the most sought-after destination for international capital, with the most cities among the top ten cross border investment targets and attracting 53% (€78bn/US$88bn) of global investment.
The USA and Canada were the top sources of cross border investment capital, together accounting for 40% of all non-domestic investment flow last year (€110.8bn/US$125bn). German capital rounded out the top three at €23bn (US$26bn). Interestingly, despite UK investment managers strengthening their continental portfolios, French cross-border investment outflows outpaced the UK for the first time on record. The make-up of cross border investment from Asi-Pacific likewise altered, with mainland China and Hong Kong dropping back but Singapore and South Korea moving up the rankings.