According to Cushman & Wakefield, new sources of capital, unsatisfied demand and a strong supply of debt is likely to result in global real estate trading activity rising 4% to reach a record $1.34tn (€1.2tn) in 2016.
The Atlas Outlook 2016 report – launched at MIPIM at Cushman & Wakefield’s stand (R7 G9) – reviews international investment patterns from 2015 and anticipates market performance for the year ahead.
It shows global property trading activity fell last year for the first time in six years, albeit edging down just 2% to $1.29tn (€1.16tn). This reflected the strength of the US dollar as well as a pullback in Asia, notably for development land. Excluding land, global volumes rose 8%, with particularly strong increases for multi-family residential and hospitality, followed by logistics.
Foreign exchange movements also had a significant impact, attracting investors towards the USA while diluting volume growth measured in other currencies. For example, while global volumes fell 2% in USD terms, in euros there was a gain of 17%. This distortion was even more apparent in EMEA with volumes flat in dollar terms but 23% up in euros.
Despite the decline in 2015, Cushman & Wakefield forecasts trading volumes will reach new heights in 2016.
Carlo Barel di Sant’Albano, chief executive of Cushman & Wakefield’s Global Capital Markets & Investor Services business, commented: “Geopolitical issues, length of the recovery cycle, volatility and increased uncertainty are leading to differing views with respect to asset allocation and how best to invest. This is benefiting real estate as allocations to the sector increase, boosting demand for assets. In this economic environment there is also an increasing number of willing sellers aiming to crystallise returns. We therefore forecast a 4% increase in trading this year, which could easily be bettered if current global volatility levels stabilise or decline.
“Performance is yet to peak, with yields not yet at their floor and a slow improvement in occupational demand pushing rents slowly ahead. The short-term cycle favours offices, with growth in prime rents of 4-5% forecast across major US gateway cities such as New York, San Francisco, Los Angeles and Boston. Elsewhere, similar gains are expected in London, Dublin, Stockholm, Madrid, Sydney, Shanghai and Tokyo.”
Outlook for 2016: Global Property Investment by Region
- EMEA: the low cost of capital in Europe plus further quantitative easing will underpin asset price inflation and sustain high levels of debt. This increases the risk of capital being misallocated over time but will also bring good levels of activity and growth in the short term. Volumes are forecast to rise 5-10% and yields to fall 30bps this year.
- North America: expected to again perform well in 2016, with a further rise in activity driven by the USA and rising values underpinned by the occupier market. In the USA, divergence on interest rate policy will drive the dollar higher and draw capital in, particularly if the economy maintains a steady rate of expansion. Core cities with liquidity and economic growth will continue to attract most buyers, led currently by Chicago, Los Angeles and Boston. In Canada, weak oil driven demand and excess supply in some cities will continue to hold back growth but Toronto and Vancouver in particular will remain in demand.
- Asia-Pacific: expected to return to positive volume growth in 2016, with land markets stable and demand for built commercial space steadily increasing. Core, and core plus, strategies will continue to target Japan and Australia but activity may be held back by a lack of stock. Other markets should offset this to deliver modest regional volume growth. The key areas of activity are expected to be core cities in China – and in particular Shanghai – as well as Singapore and South Korea. Core-plus markets such as Taipei, Auckland and secondary cities in core countries will also benefit.
Report author David Hutchings, Cushman & Wakefield’s head of EMEA investment, said: “The strategy focus for the year ahead should be assets that work for the occupier, not the banker. Productivity is key in what is now an asset, not a sector, pick. Investors are likely to focus on accessing the best local intelligence, resulting in more joint ventures and M&A activity. There will be certain common strategic themes to follow, including the potential for ‘Build to Core’ in gateway markets, providing modern flexible retail, office and residential space, and feeding demand for modern, urban-based logistics.
“Moves into other sectors are also likely to accelerate, with mixed-use developments and flexibility of use increasingly desirable. In strategy terms, focusing on cities rather than countries or sectors is beneficial, but, above all, the mantra will be ‘change not growth’ as investors seek out security and performance. Both stem from the value the property not only creates but also sustains for its occupier.”
