Real Capital Analytics / February 15th, 2018
February 12th, 2018 – Rising deal flow in Europe and record activity in the Asia-Pacific, powered notably by Hong Kong and Singapore, made 2017 the second-best year in the past decade for investment in income-generating commercial real estate, research by Real Capital Analytics (RCA) shows.
Global volumes for completed sales of commercial properties settled at $873 billion last year, matching the total registered in 2016, RCA data show. A 6% rise in the Asia-Pacific and an 8% increase in Europe offset a decline in the U.S., the world’s largest commercial real estate investment market. The past two years rank behind 2015 as the decade’s most active for completed property sales.
Simon Mallinson, RCA’s Executive Managing Director, for EMEA & APAC, said: “Europe as a whole lagged behind the U.S. and the Asia-Pacific markets in terms of the post financial crisis investment cycle. Economic growth is accelerating as low interest rates and central bank liquidity feed through into activity, prompting investors from across the globe to target opportunities in the continent for rental growth and capital appreciation.”
Europe registered $314 billion of transactions in 2017. A key feature were large deals involving portfolios, corporate mergers and acquisitions, and large single property sales — particularly in London. Led by Germany, each of the continent’s five largest markets for commercial real estate investment reported higher volumes, RCA data show, with the Netherlands and Spain setting new records. London remained the destination of choice for international investors, particularly from Hong Kong.
The Asia-Pacific region recorded a record year for investment in income-producing real estate in 2017, with transaction volumes of $158 billion. Hong Kong was a standout performer, setting numerous records, while Singapore registered decade-high activity. Coupled with a 3% pick-up in Japan, the region’s second-largest market, this compensated for the weaker Chinese and Australian markets.
The U.S. registered its second year of falling investment, led by a 32% drop in the New York metropolitan area. A total of $375.6 billion of transactions valued greater than $10m completed in the U.S. last year, an 8% decline from a year earlier. While 14 U.S. metros ranked in the top 30 global investment destinations, only Washington, D.C. and Houston, registered stronger activity.
RCA’s Mallinson remarked: “The slowdown in activity in the U.S. reflects a reassessment of pricing in the context of rising interest rates. The market’s fundamentals remain on a solid footing, with the economy in good shape, however buyers are becoming more selective in acquisitions as they can no longer rely on market momentum to drive returns and the onus is on asset management.”
Pricing and difficulties in finding core assets in the world’s top investment markets led more investors to look at alternative locations in which to deploy capital. Four of the top five global investment destinations – the New York, Los Angeles, Paris and San Francisco metros – registered lower activity, RCA’s analysis showed.
In Japan, investors turned to Yokohama and Osaka as offering better value than Tokyo, which suffered a 12% drop in transaction volumes and slipped three places to ninth in the global ranking of top metro markets. In Germany, Europe’s largest market in dollar terms, investment in the Saxon Triangle – which includes Leipzig and Dresden — more than doubled to $9.6 billion.
Aside from looking at second tier investment locations, investors have also stepped up purchases of development sites, which rose by 39% to $675 billion. Almost nine-tenths of land sales were in China, which is also the Asia-Pacific region’s largest market for income producing real estate. Forward purchases of properties currently under construction hit new records in Europe and the Asia-Pacific regions to lift the global volume of these transactions to $62.2 billion.
In Singapore, where the government is scaling back sales of development plots, developers acquired entire apartment blocks by buying out individual owners in order to demolish the building for redevelopment. Last year’s $715 million acquisition of Tampines Court by Sim Lian Group was Singapore’s largest “en bloc” transaction in a decade. In Hong Kong, where average commercial real estate prices have more than tripled since 2007, land sales jumped by 78% last year to a record $21.4 billion.
Another key trend in global real estate investment was the continued strength of the industrial sector across the Americas, Asia-Pacific and Europe. Investors are targeting logistics warehousing as companies change their supply chain management, particularly where online retailing is involved. Investment in the sector rose 33% last year to $127 billion. China Investment Corporation’s acquisition of the Logicor portfolio of logistics warehouses was Europe’s largest deal last year.
RCA’s Mallinson concluded: “The low interest rate environment has anchored real estate as a favoured asset class for investors. The global economy is growing, which will support rental growth and property values, however the actions of central banks, particularly the U.S. Federal Reserve, this year will certainly shape prospects for certain markets.”
Note to editors:
Real Capital Analytics (RCA) is the authority on the deals, the players and the trends that drive the commercial real estate investment markets. Covering all markets globally, RCA delivers timely and reliable data with unique insight into market participants, pricing and capital flows. The most active investors, lenders and advisors depend on RCA’s market intelligence to formulate strategy and to source, underwrite and execute deals. An industry pioneer since 2000, RCA has offices in New York, San Jose, London and Singapore. For more information, visit rcanalytics.com.
Simon Packard, Bellier Financial
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