Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/443516
35 January | February | 2015 CCIM.com a Cross-border deals are driving commercial real estate activity worldwide. Global Outreach by Janice Stanton, Caroline Rooney, Rob Miller, and Maria Sicola As investors continue their search for stability and yield, acceler- ated capital f ows into global real estate are set to continue in 2015. Macro- and micro-economic, demographic, and global shif s — coupled with increasing allocations from sovereign wealth funds, pension funds, and foreign high net worth investors — continue to drive this growing momentum. Within this context, global economic instability and geopolitical unease has led to a f ight to quality, with investors favoring the top global markets. Pricing in gateway cities has surpassed previous peak levels, indicating that investors are willing to pay a premium for opportunities in secure core markets. Meanwhile, secondary mar- kets, while recovering, remain below prior peak levels. Even with compressed capitalization rates and the prospect of rising interest rates, real estate remains attractive to investors on a spread basis given the yield on bonds globally. In fact, some real estate investors suggest that some room remains in the spread to absorb additional compression should interest rates increase moderately in the next year. In primary markets with the lowest cap rates, investors are counting on stronger rent growth to boost property values and total returns, of setting rising interest rates. With increased competition and resulting higher pricing for core assets across the globe, however, investors are broadening their investment targets further out on the risk/reward spectrum in search of higher yields. T is includes investing in secondary locations as well as value-add assets in primary locations. Global investment volumes returned to 2007 peak levels by year-end 2013 with $1.3 trillion worth of real estate transactions, and 2014 is on pace to surpass that level. T rough the end of November 2014, includ- ing major deals in contract, global investment volumes total approxi- mately $1.1 trillion. While U.S. and European investment volumes have returned to approximately 65 percent of their previous peak levels as November 2014, including major deals in contract, Asia-Pacif c vol- umes are nearly double 2007 levels, due in large part to land sales in China, which tapered of during the second half of 2014. Sources of Capital Wealth creation is a key driver of increased capital availability in emerging countries such as China, the Middle East, India, and Bra- zil. Industrialization and commodity based economies have created tremendous wealth at the country level as well as among a new gen- eration of businesses and entrepreneurs. In turn, they are investing in diversif ed portfolios of assets that will provide an optimum mix of returns and capital preservation. With Asia and the Middle East's Volume ($bil) Share of Capital Source CAPITAL SOURCE: AMERICAS Domestic $338.4 78.6% Intra-regional (Americas) $17.4 4.0% into APAC $19.2 4.5% into EMEA $55.6 12.9% TOTAL $430.6 CAPITAL SOURCE: APAC Domestic $364.9 81.9% Intra-regional (APAC) $43.7 9.8% into Americas $17.4 3.9% into EMEA $19.3 4.3% TOTAL $445.3 CAPITAL SOURCE: EMEA Domestic $131.2 61.5% Intra-regional (EMEA) $61.2 28.7% into Americas $17.4 8.1% into APAC $3.7 1.7% TOTAL $213.5 Karl Dolenc/Getty Images Source: Real Capital Analytics, Cushman & Wakefi eld Capital Markets as of November 2014