C&W: Global Real Estate Investors More Wary as Real Estate Cycle Matures

Investors are focusing investments in a single country, with 61% of the available capital taking this route.

Investors are looking to deploy as much as $435 billion in real estate investments globally in 2017, according to Cushman & Wakefield, based on new capital raised, including debt and equity financing, for this purpose. Although down 2% from 2016 levels, as a result of a dip in debt capital available, this is still the second-highest amount on record, the real estate services firm reports. As the real estate cycle matures though, investors are focused more on deploying the funds they have already raised, rather than on raising fresh funds.

According to Elizabeth Troni, Cushman & Wakefield’s head of EMEA research and insight, “With the great wall of money targeting real estate at near record levels, investors need to remain focused, but agile. We expect 2017 to be marked by ongoing competition to place capital and source attractive opportunities. While core real estate strategies remain highly attractive, demand tends to outstrip supply in many key markets, pushing down yields and challenging investors.”

When investors are not able to find the core assets they favor, they opt for ‘build to core’ strategies, whereby they focus on redevelopment or development projects to create such assets in leading markets. Besides  such newer investment strategies, C&W also expects new sources of capital to be unlocked worldwide, especially in countries such as China, Malaysia, Taiwan, and South Africa.

Investors are also focusing more on investing in a single country—with 61% of the available capital taking this route—rather than investing across many countries. There has been a 55% rise in this tactic in the past three years. The US remains the favored market for most investors for 2017 investments, followed by China, which is mostly attracting capital from its domestic funds. Overseas funds, including US funds, are also looking for a base in China, so as to benefit from the country’s rapid economic growth.

While the UK remains the third most sought-after market for real estate investors, C&W anticipates that less capital will be invested in that country as investors watch for the outcome of the Brexit negotiations.  Investors are also watching for any potential price declines. In the meantime, Germany could benefit from some of the capital that avoids the UK and looks to Germany’s ‘safe haven’ reputation and stable economy.  One deterrent, however, is the challenge in locating properties that are priced right.

C&W is seeing $79 billion in equity capital available for the Americas, which is higher than the $72 billion available for the Europe, Middle East and Africa (EMEA) region for the first time. This comes about as institutional investors clamor for a piece of the US real estate pie, hiking up their allocations to this niche to the highest ever. Offshore investors are also interested in the “high-quality” US real estate assets.

The decline in the equity slated for the EMEA region is tied to the strong dollar, considering that most of the funds targeting Europe report in either Euros or pounds.

Chinese investors tend to most favor leading US cities such as New York, Chicago, San Francisco, Washington, Los Angeles, Seattle, and Boston. The property types these Chinese investors most prefer is office, with hotel coming in second. They are also developing more of an appetite for senior housing properties.

And the amount of equity funding targeting the Asia Pacific region gained 7% to touch $65 billion, while the total capital targeting the region was $132 billion. The total capital targeting the Americas was at $173 billion, while that targeting the EMEA region was at $130 billion.

According to Nigel Almond, C&W’s head of EMEA capital markets research, “For the first time, we see more capital targeting Asia than EMEA, putting it second to the Americas, reflecting the maturity and growth of opportunities across the region as well as the prospects for attractive returns.”  

By Poonkulali Thangavelu