Caution sees real estate investment cool, but demand remains

The sale of a well-recognized real estate complex in Singapore for $S1.6 billion this week signalled the strength of demand from overseas capital in the city state’s booming office market.

August 02, 2019

Investment in global commercial real estate has cooled slightly this year after a bumper 2018 and caution amid political and economic uncertainty.

Global real estate investment volumes hit US$341 billion in the first half of 2019, down 9 percent from the same period last year, according to JLL.

A dip was widely expected after 2018 marked the highest investment volumes since 2007. Also contributing to the drop has been some restraint among investors, who are contending with a slowdown in global economic growth, political upheaval, and a changing retail landscape.

“As we look ahead to the second half of the year, we expect investment to decline by approximately 5 to 10 percent, to around US$730 billion for the full year, as investors continue to respond to the overall global environment,” says Pranav Sethuraman from JLL’s Global Capital Markets Research team.

As the current cycle continues to extend, managers are finding it challenging to deploy capital in an environment of elevated prices. Dry powder continues to build and stands at a record US$331 billion.

While global investment was down, activity was far from homogenous. Investment fell in the EMEA and Americas regions, but Asia Pacific broke yet another record as volumes hit a new first-half high of US$86 billion, according to the latest cross-border flows data from JLL. 

Demand for commercial real estate hasn’t waned, either. Fundraising by private closed-end real estate funds recorded its highest ever first-half level at over US$80.3 billion.

“Risk-free rates continue to plummet, lowering financing costs and widening spreads to property at a time when investors are hungrier than ever for yield,” Sethuraman says.

 “Although prices are elevated across many global markets, fundamentals remain sound, underwriting is disciplined, debt levels are generally modest, and investors remain keen to access the sector,” he says.

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