Cushman & Wakefield' International Investment Atas outlook
According to Cushman & Wakefield’s latest International Investment Atlas released today, the global property investment market saw a modest 6% rise in activity during 2012 with volumes reaching US$929bn (€714bn).
In what was a difficult year in most markets, investment volumes rallied in Q4 signalling the beginning of real momentum and a return of confidence in the market which could see volumes this year increase 14% to exceed US$1 trillion mark (€815bn) for the first time since 2007.
According to Cushman & Wakefield, the increase in activity this year will be led by North America and Asian markets and driven by increased allocations to property by institutions and high net worth individuals/families plus increased stock on coming to the market.
Glenn Rufrano, Global President & CEO of Cushman & Wakefield said: “2012 was a year of profound uncertainty in the global economy which impeded decision making and market activity. We anticipate there will be less uncertainly this year and in fact, a true change in market confidence and indeed momentum seems to have been confirmed in the early months of 2013 as major global risk factors are seen to be receding – albeit not yet disappearing.“
In 2012, China and the USA were two key engines of the strong finish – the former benefitting from a record high in land right sales and the latter seeing a rush of activity to beat year-end capital gains tax hikes. However growth was far from limited to these two global heavyweights and a range of other markets in all regions saw a final quarter rally notably Spain, Poland, Norway, Switzerland, Indonesia, Thailand, India and Australia.
The market to date has remained selective and focussed on core product. By region, North America and Developing Asia drove the overall global rise, with mature European and Asian markets largely flat and emerging markets in Europe, the Middle East, Africa and South America all down.
In 2012 by country , the USA and Mexico were the biggest gainers in the Americas, Malaysia, Vietnam, Australia and New Zealand enjoyed the strongest growth rates in Asia, while for Europe, Finland, Norway, Switzerland and Ireland saw the highest growth. More modest increases in big markets like China, Germany and Hong Kong were also clearly instrumental in delivering growth at the global level.
Regional Trends – The Americas is strongest performer overall and Europe is top for cross border investment
In terms of market performance The Americas saw stronger investment activity, a bigger contraction in yields and more positive rental growth. Asia was more stable with EMEA clearly taking the biggest hit from the market slowdown.
The Americas share of global trading rose to 32% in 2012 from 28% in 2011 while EMEA slipped to 21% (from 24%). Asia remained the largest global trading block, accounting for 47% of market activity, down from 48% in 2011. Interestingly, this remains a domestically driven picture however.
Among cross border players, Europe is the biggest target market, attracting 51% of capital, up from 45% in 2011. By contrast Asia speaks for 31% of cross border investment and the Americas 18% - down from 20% in 2011.
Occupier markets were clearly a lot more cautious last year leading to slower demand and rental falls in some areas. Overall, low supply has been a key support in all regions and while rents did reverse in some areas later in 2012, overall growth for the year was broadly positive. Retail tended to be the best performing sector and the Americas the best performing region in all sectors, typically led by South America ahead of the USA and Canada.
Greg Vorwaller, head of global capital markets at Cushman &Wakefield, “Global capital flows from sovereign wealth funds have been dominating the market notably from North American funds but with a very diverse base including rising Far and Middle Eastern interest as well as more European buying. To date, the move of global pension funds has been led by Canadian and Far Eastern money but Australian funds are becoming more important as pension allocations there are raised further.”
He continued: “More Far Eastern and Central Asian players will also be looking to go global and more Chinese funds will also add to the weight of capital in the market in the short-term. Family offices and high net worth individuals are a key part of global demand, and again a very diverse group coming from all corners of the globe. Most adopt a “safety first” approach as long term players and high quality trophy assets in gateway cities are favoured across a broadening lot size range.”
Outlook and regional investment opportunities and strategies in 2013
David Hutchings, head of EMEA research at Cushman & Wakefield said: “There is a growing consensus that we are past the worse for the risk cycle and that 2013 risks are weighted towards the earlier part of the year which if proven true will support a more marked pick up in confidence and hence activity later this year. There will be a very polarised landscape in terms of risk and performance: by country, city and sector, and a key theme of the year will be about finding value in second tier markets as investor yield demand grows and as cost sensitive occupier interest grows.”
America’s to lead the recovery in 2013 as favoured global destination for real estate investment
North America will be a favoured market in 2013 despite ongoing political and fiscal uncertainties. Early signs of a recovery in occupational demand together with an improving economy and debt market, low vacancy and high liquidity augers well for investment demand and performance. As a result, a 15-20% increase in investment activity is forecast, alongside modest cap rate contraction , led by the best second tier markets, and a steady normalisation in occupational markets and hence some rental growth. While yields are likely to flatten out for already low cap rate markets, there will be further compression in higher cap rate markets such as suburban offices and industrial as debt availability is boosted by an upturn in CMBS issuance.
Greg Vorwaller head of global capital markets at Cushman & Wakefield said: While the US will be a preferred investment market for yield, investors will have to move up the risk curve possibly through buying vacancies in top tier markets or acquiring top assets in secondary markets.”
Asia Pacific - investment activity to rise 15-20% in 2013
Improved macroeconomic conditions with sustainable growth across the region will boost activity and performance resulting in 15-20% increase in investment activity forecast. Investment demand will increase as faith grows in China’s soft landing but demand will also broaden and other markets such as Australia and Japan will be an increasing target for overseas investors while markets such as India and Indonesia are likely to be on the rise. Long term trends such as urbanisation and the increasing middle class will add to demand to access a range of sectors including residential, especially in Chinese cities as well as higher growth markets as Indonesia and Vietnam.
John Stinson, head of capital markets in Asia Pacific for Cushman & Wakefield said: “There are clear opportunities in all sectors. In office we expect global banks to follow regional banks in expansion plans fuelling office demand and generating steady rent growth in the major gateway markets of Tokyo, Shanghai, Hong Kong, Singapore and Sydney . Retail will be boosted by strong retail turnover growth off the back of buoyant GDP forecasts this year with Kuala Lumpar, Bangkok, Beijing and Jakarta likely to benefit the most. Overall the hottest sector this year will be logistics with major hubs of Osaka, Tokyo , Shanghai , Hong Kong and Singapore with strong demand and investment activity anticipated . For value add opportunities we see strong interest in Indonesia and Malaysia which have performed strongly during uncertain global markets and continuing strong sentiment for India which is now offering some of the most attractive returns in the region.”
Stronger trading forecast for European markets 2013 but in an increasingly diverse market
European investment activity is likely to remain subdued in the short term by the lack of quality product and affordable financing but the signs are that more stock released by the banks, the public sector and corporate owners should produce greater activity in 2013 generating a modest 5% increase.
European market trends will continue to diverge with a number of peripheral European markets bouncing along the bottom for some time.
Michael Rhydderch, Head of European Capital Markets at Cushman & Wakefield, said “The supply of investment stock generally is likely to improve meanwhile as banks increasingly release legacy assets through loan and real asset sales. Although we do anticipate more buyers going up the risk curve in 2013, core markets and strategies are likely to dominate again. Germany in particular will remain a top pick for most investors, with a further gain in its market share forecast in 2013, as in the Nordics. London and Paris are also likely to benefit from the safety-first attitude.”