Global Capital Flows
Q2 2019
Quarterly analysis of cross-border investment to global commercial real estate markets
Following a strong 2018, which ranks among the three most liquid years on record, the first half of 2019 saw investment in global real estate mark a minor slowdown, with year-on-year* sales transaction activity dipping by 9% to US$341 billion, representing a level of softening in line with expectations.
Investor sentiment remains robust - the U.S. is evidencing a new boost to sentiment due to looser monetary policy – and the weight of capital seeking to access real estate continues to grow. But many groups are finding it increasingly difficult to source product which meets their investment criteria, thus limiting transaction volume growth.
Although liquidity in the retail sector is down by 20% globally in the first half of 2019, this weakness is entirely concentrated in EMEA and the Americas. Investment in retail increased by 7% in Asia Pacific in H1 and prospects for the sector in the region remain bright, particularly in developing markets where urban, middleclass populations are growing rapidly.
Singapore rebounded from last year’s slump as first-half investment nearly doubled. Solid fundamentals in the office market have led to a number of large-scale transactions.
Paris saw a flood of cross-border capital during the second quarter, making it the largest recipient of foreign capital during the first half of the year. Activity has been heavily concentrated in the office sector as European and South Korean groups have targeted assets in the CBD and La Défense submarkets.
Outbound investment from South Korea has been elevated in H1 2019 as groups increasingly pursue assets in Continental Europe. Negative currency-hedging effects have made acquisitions in the U.S. more expensive and many Korean investors already have significant exposure to the UK. This has caused several groups to shift their focus to other markets in Europe such as France, Poland and the Czech Republic.
Fundraising by private closed-end real estate funds stands at its highest first-half level with US$80.3 billion raised through the first two quarters. LPs continue to flock to mega-funds as they seek to consolidate their real estate investments. Dry powder levels are also at an all time high and managers face continued pressure to deploy capital amid a low-yield environment.
Looking forward to the rest of 2019, we expect global investment in commercial real estate to decrease by about 5% to 10% to roughly US$730 billion. With Asia Pacific continuing to outperform, the global decline will be driven by weakness in EMEA and a slowing momentum in the Americas following a bumper 2018.