What are the recent trends in global real estate investment?

Global commercial real estate volumes were up 17% in the first half of 2015 and cross-border flows have also been on the rise. Which investors have been active and in which locations and sectors? 

19th October 2015

What are the recent trends in global real estate investment?

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Total real estate investment has continued to improve in recent years, but is yet to fully recover to pre-crisis levels. In 2014, according to Real Capital Analytics, global real estate volumes reached US$807 billion, still 22% below the pre-crisis peak of $1 trillion. Global commercial real estate volumes were up 17% in the first half of 2015 to $420 billion, above the same period in 2007. While total transaction volumes continued to improve, international cross-border investment has been slower to recover, but has taken off since 2014 reaching US$213 billion in 2014. The trend is continuing into 2015 with US$130 billion in the first half representing 31% of total global property transaction and on track to match pre-crisis levels. Cross-border flows have been increasing particularly in Europe, where the share of cross-border investment has risen from around 30% in 2009 to around 50% of total in 2015. As a result, non- European buyers now account for 37% of the market, a higher proportion than historically. Within Europe, London continues to be the favourite destination for investors’ capital. In H1 2015 London accounted for more transaction volume than the next seven European cities combined.
Who is active in “safe-haven” markets like London?
There has been an increase in international investment activity by Asian investors. Historically, Asian investors preferred their domestic and regional markets. Nonetheless in recent years there has been a significant outflow of capital from Asia. Capital outflows from Asia recovered to pre-crisis peak levels in 2013 and surpassed those in 2014 (US$42bn); the trend is strengthening in 2015 (US$35 in H1 2015). The majority of cross-border investment from Asian investors outside of their continent has been to the US and the UK, specifically London. There are several factors driving flows out of Asia including the glut of high savings in the region and the raising of outward investment thresholds in China that started in 2010 with public institutions; we can only expect this trend to strengthen going forward.  In addition there has been a significant rise in Sovereign Wealth Fund (SWF) investment since 2010. SWFs continue to target “safe-haven” markets, particularly London. Over the past five years “safe heaven” markets including London, Paris, New York and Tokyo have been the recipients of around 80% of SWF investment.
Which are the preferred sectors by investors?
Retail, Industrial and Apartment investment surpassed pre-crisis peaks in 2014, but investment into the Office and Hotel sectors has yet to recover to 2007 levels. Apartment investment in particular has a sharp increase, from 12% of total volumes in 2009 to 20% in June 2015. While the US makes up the bulk of apartment investment globally, residential investment in Europe has seen strong growth, with volumes now more than double pre-crisis levels.  Apartment investment in the UK has really taken off with investment volumes rising from an average of $1 billion before the crisis to $7.5 billion in H1 2015. Beyond residential, there has been a widening of the base of assets that investors are willing to invest in. There is growth in senior housing and healthcare sector in response to global demographic trends, particularly in the US and Europe.  Investors appear to be looking for returns further away from their domestic markets and in a broader range of real estate sectors. This is an indication of higher risk tolerance but also a sign of lower available returns in core markets.

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