Overview

Investment environment

The current global real estate cycle has further to run; the global economy is yet to build up the excesses that typically lead to a downturn. However, we are moving towards a new phase where the strengthening global economy will mean interest rates start to rise and some currencies appreciate; albeit with some significant variations in timings.

Increase in lending

We also anticipate that the lending market will open up further in advanced economies as the investors and institutions play the growing interest rate arbitrage between countries.

Chinese capital

China has quickly become one of the most important sources of global capital. While some Chinese investors may find it difficult to obtain foreign exchange clearance for now, those that can plus investors with Hong Kong or Singapore listings will maintain a steady flow.

Emerging market focus

As economic performance and currencies shift, we expect to see more focus on emerging markets from both global and local players. This should lead to a move towards more opportunistic capital chasing markets such as India, China and parts of Central and Eastern Europe. Nevertheless, the continued momentum of real estate capital globalisation means that the Super Cities and advanced economies will certainly not fall out of focus for core investors.

Sovereign investors

Sovereign investors will continue to grow assets under management and to build allocations to real estate. The quantum of capital involved will make them major landlords even in the largest markets; forecasts of total AUM increasing by 6% per annum suggest a possible additional allocation to real estate of USD185 billion by 2020.

Japanese capital

Japanese investors are increasingly looking overseas as government policy encourages a move from deposits towards investment products and we expect more of this capital to be allocated to global real estate given the low growth rates domestically and relatively illiquid local markets.

Private investors

Private investors will play an increasingly important part in the market as wealth creation continues to grow at pace and real estate remains favoured as a store of wealth and source of income and, importantly, a tangible, controllable asset. We predict the global population of ultra-wealthy individuals will rise by 43% over the next ten years.

Robust transaction

volumes Significant dry powder continues to target global real estate and this, combined with the increasing focus on previously unfavoured markets in emerging locations, will drive robust transaction volumes.

Innovative ownerships

We expect to see a rise in structured deals as both vendors and purchasers look for innovative ways to assemble ownerships.

M&A to drive sales

It is likely there will be more mergers and acquisition activity in the asset management sector as fee pressures drive consolidation. This will be a source of sales in core locations.

From trading to holding

In many advanced economies we expect a shift from ‘trading’ to ‘holding’ strategies as capital becomes harder to redeploy. This will support pricing and, in turn, will drive further sales from opportunistic owners tempted by the yield compression this lack of stock will drive.

Structural shifts driving occupiers

While increasing development and slowing rental growth is signalling maturing cycles in some markets, momentum will be maintained by structural shifts in a number of sectors including co-working in the office sector, e-commerce in industrial and logistics and the continued growth of operating sectors such as student housing and multihousing.

Risk radar

There are always new risks on the horizon. Our watch list includes energy issues, geo-political risks, interest rate movements, the current dependency on tech occupiers and the ongoing issue of anti-globalisation.