Global CRE Investment Increases

The annual growth rate of commercial real estate (CRE) investment in 2017 (single-asset, portfolio and entity-level transactions) was revised up from 3.6% to 4.9% globally, with better than previously reported growth in all regions.

APAC registered the highest growth of 22.1%, followed by EMEA (13.8%). Americas volume was down by 4.6% (versus -6.3% previously reported), mainly caused by weakness in several key U.S. markets such as New York.

Total global investment volume in Q1 increased by 1.3% year-over-year to US$208 billion. Americas rebounded quite nicely in Q1 2018 (versus Q1 2017), reporting year-over-year growth of 2.3%, while transaction volumes were level in APAC (0.7%) and EMEA (0.1%).

The U.S. market transacted US$108 billion or 52% of the global total, up 3.8% from the same period last year and led by hotel and multifamily acquisitions. The New York market posted 29% year-over-year growth in Q1, with 13 closed sales totaling more than US$250 million each. Average cap rates stabilized for core office and retail assets, whereas average cap rates fell for industrial, multifamily and hotel properties.

Q1 transaction volume in EMEA was unchanged from Q1 2017, albeit at a very high total. This was the result of continued weak activity in the U.K., where Q1 investment volume was down 8.2% from Q1 2017. Excluding the U.K., Q1 investment volume in EMEA increased by 3.3% from Q1 2017’s level. Strong growth in Spain, Portugal, Ireland, Belgium and Central Europe more than offset a slowdown in France, Italy and the Nordics. Yields declined in key European markets amid supportive economic growth. The 2018 outlook for the EMEA is moderate overall, with a potential downside risk in the aftermath of Brexit.

Investment in APAC was slightly up in Q1 2018. Japan saw the most investment volume, recording 16% growth on a moving four-quarter basis but down by 6% from Q1 2017, which was a three-year high. Hong Kong, China and South Korea experienced healthy year-over-year growth. The Pacific markets softened due to limited supply, though demand remained high for quality assets—especially from foreign buyers. Cross-border capital flow to APAC strengthened in Q1, mainly from U.S. investors. Intra-regional capital flow in APAC is also expected to rise as China eases its grip on capital outflows. High volatility in stock and bond markets will divert more investors to real estate, but high asset pricing remains an obstacle in the region.

The global economy has surprised on the upside over the past nine months. Combined with continued low interest rates, this created a strong impetus to invest in real estate, which we can see in the figures.

By Richard Barkham, Global Chief Economist, CBRE.