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Global real estate investment falls for first time in five years

Global real estate investment fell in 2014 for the first time in five years, dropping 6.3% to US$1.21 trillion, according to research published today at MIPIM by global real estate adviser Cushman & Wakefield.

This decline in activity can be solely attributed to a drop in Chinese land purchasing – however, most of the market is in rude health and set to improve further still in 2015, according to Cushman & Wakefield’s annual global capital markets report International Investment Atlas.  Indeed, the report forecasts global investment volumes to rise by 11% in 2015 to US$1.34 trillion, led by Europe and the US.

Looking back to 2014, the report states that while excess capacity in some parts of the property market and past policy tightening impacted on Chinese investors and developers, excluding China land sales, global volumes rose 9%.  Asia in fact saw modest growth (1%) last year despite these and other tightening measures. Other regions recorded stronger increases, with the Americas ahead 11.4% and Europe 11.8%.  Europe would have led the way more significantly had it not been for the strength of the US dollar. 

David Hutchings, head of EMEA investment strategy at Cushman & Wakefield, said: “The 2014 pick-up was better than many predicted this time last year but the 2015 outlook is stronger still, with the brakes now coming off the market.  Not only do we have strengthening global liquidity thanks to low interest rates and an expansion in quantitative easing, we also have the start of stimulus measures by China, signs of deeper reform in more markets and an improvement in the fundamentals for the occupier in many areas.  Despite the heightened risks we also have to contend with, this all points to the up cycle in global real estate being both magnified and extended.”


KEY GLOBAL TRENDS FROM THE REPORT: 

  • Global demand on the rise: Volumes to rise further thanks to still increasing liquidity and attractive relative returns, with demand spreading to new markets, focused however on the best;
  • Risks are higher but the environment is more favourable for property: A wide range of risks are emerging but market fundamentals are stronger thanks to a boost to occupational demand as well as investment;
  • Changing needs to drive the occupier: The changing nature of the use of space will drive demand for new locations, specifications and entirely new sub sectors.  There will however be losers along the way;
  • Balancing act continues: The risk of a bubble continues but a market rebalancing is starting, with a greater spread of global demand and a closing in the gap between occupier and investor;
  • Targets for investment to grow more diverse: Focus on core continues but further expansion into new markets will be seen to unlock opportunities and this will include a judicious re-appraisal of some emerging markets.

Jan-Willem Bastijn, head of EMEA capital markets at Cushman & Wakefield, said: “There’s more risk out there at a global and a local level and core markets will remain in demand as a result.  However, interest is already spreading to new locations in search of yield and stock, whether we are talking about the rediscovery of the fringe markets of Europe, the drift to decentralised as well as second or third tier US cities, or the growth in demand for new sectors in Asia.  This is going to accelerate in 2015 with alternative sectors going mainstream and emerging markets back on the radar – at least selectively.  However, it’s the occupier that investors need to keep an eye on and when the current yield and finance driven bubble starts to fade, it will be those markets and assets that pay heed to changing user needs that actually deliver for investors.”


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