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
37 January | February | 2015 CCIM.com tan, London, and Tokyo. Shanghai came in f f h with $26 billion. Sydney, Australia, was in the eighth spot and Melbourne, Australia, came in in 18th. Nearly half of the capital invested in Australia as of November 2014 targeted of ce product followed by retail assets (18 percent) and development sites (14 percent). While EMEA's economy is improving, the property market recov- ery has lagged other asset classes and other regions on a relative basis. London is the second-ranked target market globally, but it is one of only two European markets on the top 20 list (the other being Paris in the seventh spot with $22 billion). T e European of ce market attracted nearly 43 percent, or $110 billion, of all the investment dol- lars that went to European assets. Retail attracted nearly 23 percent, or $59 billion, as the European debt crisis lef consumers with much uncertainty. And multifamily is gaining traction as an institutional asset class among European Investors. A Positive Outlook Looking forward, real estate fundamentals support investor con- f dence in this asset class. Oxford Econometrics forecasts gross domestic product growth of 3.5 percent in 2015 and increasing thereaf er. Demand for goods and services in an accelerating global economy will support a gradual ramping up of economic growth in the Americas, Asia-Pacif c and, to a lesser extent, Europe. Key drivers of economic activity in 2015 will include: • strengthening U.S. performance. T e U.S. is expected to lead the expansion in the coming year with 2015 GDP growth projected at roughly 3.3 percent. • continuing slowdown in China. T e Asia-Pacif c region will benef t from stronger U.S. demand, but this will be largely of set by slower growth in China. T e Chinese economy is shif ing slowly to a more internal demand driven model, but high debt burdens are likely to slow consumer spending and business investment growth in 2015. Overall, Asia-Pacif c GDP growth is projected at 5.1 percent in 2015, roughly the same as in 2014. • increasing economic stimulus in Europe. GDP growth in the eurozone is expected to accelerate from 0.8 percent in 2014 to 1.2 percent in 2015. In the U.K., tighter monetary policy will cause growth to slow to a still strong 2.6 percent in 2015, down slightly from 3.0 percent this year. Looking ahead, investor appetite for real estate across all three regions remains hearty. According to the latest f gures from Preqin, $220 billion of "dry powder" is waiting on the sidelines, targeted for real estate investment on a global basis, up 18.3 percent from December 2013. Where Are the Opportunities? Approximately $113 billion of funds are targeting North American opportunities. Core cap rates have compressed to such low levels that more investors in search of yield will look beyond gateway cities to secondary markets or repositioning plays in primary markets. As the U.S. debt market continues to of er favorable pricing, mezzanine debt vehicles are looking more attractive. With an accelerating eco- nomic recovery, rents are expected to increase, and the U.S. should continue to of er investors both stability and upside. European investors are raising more funds targeting a broad range of investment strategies from core in Western Europe to value-add and opportunistic plays in Eastern Europe with select investors keeping a watchful eye on Russia. T e renewed interest in European assets has resulted in $65 billion of funds looking to be invested, a 44 percent increase over 2013 levels. Europe is poised to benef t from a rebounding economy, which will translate into stronger demand, improving rent growth prospects, and higher net operating incomes. Investors have scaled back their interest in Asia-targeted funds in the past year. Today, $32 billion is focused on this region. New of ce supply is concentrated in China, India, and also Australia, leading to slower rent growth and higher vacancies as economic growth is moderating. In Shanghai, companies upgrading to new, more ef - cient space has dampened demand for outdated buildings lacking adequate infrastructure. Investor appetite for real estate is increasing across the globe, and barring a black swan event, we will continue to see downward pres- sure on cap rates. Favorable debt pricing will fuel the f re, as lenders have more conf dence in the global market now than they did 12 to 24 months ago. While of ce product remains the favored investment target, the conf uence of an improving global economy is spurring interest in build-to-core development, and technological advances in e-commerce is spurring greater investor interest in the industrial/ distribution sector as well as in pockets of retail — a trend that will likely gain visibility in the coming year. Janice Stanton is senior managing director in the capital markets group, Caroline Rooney is managing director of capital markets and Northern California research, Rob Miller is director of research, and Maria Sicola is executive managing director of research at Cushman & Wakefi eld. Contact them at www.cushmanwakefi eld.com. THE TOP 10 INVESTMENT MARKETS Commercial property investment, as of November 2014 US$ Billions $47.3 $40.9 $31.7 $29.3 $26.4 $23.1 $21.6 $15.3 $14.4 $14.2 0 5 10 15 20 25 30 35 40 45 50 Manhattan London Tokyo Beijing Shanghai Los Angeles Paris Sydney San Francisco Chicago Source: Real Capital Analytics, Cushman & Wakefi eld Capital Markets