A strong year for global real estate investment

Rising political and economic uncertainty impacted investment in global commercial real estate in the fourth quarter of 2018 as volumes dipped by 11% compared to the last three months of 2017, to US$212 billion. Nonetheless, this rounds off a strong year for property markets with full-year volumes rising by 4% to US$733 billion, the highest since 2007.

In a context of rising uncertainty and volatility, global commercial real estate is well positioned to continue its robust performance. High-quality assets with strong tenants and long leases remain highly sought-after as investors continue to pursue stable sources of income. Though yields are still at or below previous cyclical lows with limited scope for further compression, fundamentals are supportive and rents are expected to grow moderately in 2019. We project that global investment activity in commercial real estate will slow, with overall volumes down by 5%-10% in 2019. In addition, we expect to see an emphasis on indirect investment, entity-level transactions, recapitalisations and debt.

U.S. drives outperformance in the Americas

Halting a two-year slide in total investment activity, property investment in the Americas staged a comeback in 2018, driven largely by the U.S. Transaction volumes in the region during the final quarter jumped by 15% compared to 2017 – the strongest quarterly result since 2016. Full-year volumes totalled US$281 billion, a 13% increase on 2017. Stronger economic growth in the U.S. was one of the factors behind the upswing in investment, but this growth was not repeated elsewhere in the region, with Brazil, Canada and Mexico all unable to improve on last year’s performance.

EMEA investment levels lower in 2018

Investment activity in EMEA during the fourth quarter totalled US$94 billion, the second-strongest quarter on record for the region. This brings full-year volumes to US$293 billion, 6% lower than last year’s total. Performance varied across Europe: the UK and larger regional markets such as the Nordics saw activity fall, but Germany, France and a number of smaller markets saw impressive growth in transaction activity.

China's record finish helps lift Asia Pacific to new heights

Following a brief lull in investment growth in Asia Pacific, the fourth quarter saw the region return to form with transactions 31% higher than the long-run average. Full-year volumes reached US$159 billion, 7% better than last year’s total and setting a new high for the region. South Korea was the region’s standout performer with transaction activity 49% above 2017 levels, while record volumes in China and Hong Kong helped to boost the overall regional performance, offsetting a dip in Singapore (-15%) and flat performances in Australia and Japan.

Europe continues to lead capital growth

Prime office capital value growth has gradually decelerated over the past year to an annualised rate of 5.5% (across 30 major office markets). Capital appreciation continues to be underpinned by robust income growth. Top global performers in 2018 were dominated by European cities, notably Amsterdam, Madrid and Berlin. For the full-year 2019, capital growth for prime office assets is expected to slow to around 1%-2%, as rental growth moderates and yields flatten.


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