(24 March 2016, Shanghai) – New sources of capital, unsatisfied demand and a strong supply of debt is likely to result in global real estate trading activity rising 4% to reach a record US$1.34tn in 2016, according to Cushman & Wakefield.
The Atlas Outlook 2016 report reviews international investment patterns from 2015 and anticipates market performance for the year ahead.
It shows global property trading activity fell last year for the first time in six years, albeit edging down just 2% to US$1.29tn. This reflected the strength of the US dollar as well as a pullback in Asia, notably for development land. Excluding land, global volumes rose 8%, with particularly strong increases for multi-family residential and hospitality, followed by logistics.
Foreign exchange movements also had a significant impact, attracting investors towards the USA while diluting volume growth measured in other currencies. For example, while global volumes fell 2% in USD terms, in euros there was a gain of 17%. This distortion was even more apparent in EMEA with volumes flat in dollar terms but 23% up in euros.
Despite the decline in 2015, Cushman & Wakefield forecasts trading volumes will reach new heights in 2016.
Carlo Barel di Sant’Albano, Chief Executive of Cushman & Wakefield’s Global Capital Markets & Investor Services business, commented: “Geopolitical issues, length of the recovery cycle, volatility and increased uncertainty are leading to differing views with respect to asset allocation and how best to invest. This is benefiting real estate as allocations to the sector increase, boosting demand for assets. In this economic environment there is also an increasing number of willing sellers aiming to crystallize returns. We therefore forecast a 4% increase in trading this year, which could easily be bettered if current global volatility levels stabilize or decline.
“Performance is yet to peak, with yields not yet at their floor and a slow improvement in occupational demand pushing rents slowly ahead. The short-term cycle favours offices, with growth in prime rents of 4-5% forecast across major US gateway cities such as New York, San Francisco, Los Angeles and Boston. Elsewhere, similar gains are expected in London, Dublin, Stockholm, Madrid, Sydney, Shanghai and Tokyo.”
In Asia-Pacific, the region generally performed well in 2015, with strong demand compressing yields and positive space absorption typifying core occupier markets.
Looking ahead, Asia-Pacific is expected to return to positive volume growth in 2016, with land markets stable and demand for built commercial space steadily increasing. The lead for economic growth looks likely to be taken by India together with smaller South East Asian markets such as the Philippines and Vietnam. Nonetheless, China of course remains an economic powerhouse, and while concerns about its health are creating waves, reports of a hard landing are overdone. Although questions will remain for future years as China’s transition continues, a sensible central case for assumptions this year is for slower growth not a reverse.
In terms of market conditions, the strongest office locations are tier-1 mainland Chinese cities plus Taipei and Hong Kong, while Sydney and Melbourne saw a marked improvement and several emerging markets ended the year well, particularly outsourcing hubs such as Bengaluru and Manila.
Report author David Hutchins, Cushman & Wakefield’s Head of EMEA Investment, said: “The strategy focus for the year ahead should be assets that work for the occupier, not the banker. Productivity is key in what is now an asset, not a sector, pick. Investors are likely to focus on accessing the best local intelligence, resulting in more joint ventures and M&A activity. There will be certain common strategic themes to follow, including the potential for ‘Build to Core’ in gateway markets, providing modern flexible retail, office and residential space, and feeding demand for modern, urban-based logistics.
“Moves into other sectors are also likely to accelerate, with mixed-use developments and flexibility of use increasingly desirable. In strategy terms, focusing on cities rather than countries or sectors is beneficial, but, above all, the mantra will be ‘change not growth’ as investors seek out security and performance. Both stem from the value the property not only creates but also sustains for its occupier.”
