The global property investment market saw a modest six per cent rise in activity during 2012 with volumes reaching USD929bn (EUR714bn), according to Cushman & Wakefield’s latest International Investment Atlas.
In what was a difficult year in most markets, investment volumes rallied in Q4 signalling the beginning of real momentum and a return of confidence in the market which could see volumes this year increase 14 per cent to exceed USD1trn mark (EUR815bn) for the first time since 2007.
According to Cushman & Wakefield, the increase in activity this year will be led by North America and Asian markets and driven by increased allocations to property by institutions and high net worth individuals/families plus increased stock on coming to the market.
Glenn Rufrano, global president and chief executive of Cushman & Wakefield, says: “2012 was a year of profound uncertainty in the global economy which impeded decision making and market activity. We anticipate there will be less uncertainly this year and in fact, a true change in market confidence and indeed momentum seems to have been confirmed in the early months of 2013 as major global risk factors are seen to be receding – albeit not yet disappearing. “
In 2012, China and the US were two key engines of the strong finish – the former benefitting from a record high in land right sales and the latter seeing a rush of activity to beat year-end capital gains tax hikes. However growth was far from limited to these two global heavyweights and a range of other markets in all regions saw a final quarter rally notably Spain, Poland, Norway, Switzerland, Indonesia, Thailand, India and Australia.
The market to date has remained selective and focussed on core product. By region, North America and developing Asia drove the overall global rise, with mature European and Asian markets largely flat and emerging markets in Europe, the Middle East, Africa and South America all down.
In 2012 by country, the US and Mexico were the biggest gainers in the Americas, Malaysia, Vietnam, Australia and New Zealand enjoyed the strongest growth rates in Asia, while for Europe, Finland, Norway, Switzerland and Ireland saw the highest growth. More modest increases in big markets like China, Germany and Hong Kong were also clearly instrumental in delivering growth at the global level.
In terms of market performance, The Americas saw stronger investment activity, a bigger contraction in yields and more positive rental growth. Asia was more stable with EMEA clearly taking the biggest hit from the market slowdown.
The Americas share of global trading rose to 32 per cent in 2012 from 28 per cent in 2011 while EMEA slipped to 21 per cent (from 24 per cent). Asia remained the largest global trading block, accounting for 47 per cent of market activity, down from 48 per cent in 2011. Interestingly, this remains a domestically driven picture however.
Among cross border players, Europe is the biggest target market, attracting 51 per cent of capital, up from 45 per cent in 2011. By contrast Asia speaks for 31 per cent of cross border investment and the Americas 18 per cent - down from 20 per cent in 2011.
Occupier markets were clearly a lot more cautious last year leading to slower demand and rental falls in some areas. Overall, low supply has been a key support in all regions and while rents did reverse in some areas later in 2012, overall growth for the year was broadly positive. Retail tended to be the best performing sector and the Americas the best performing region in all sectors, typically led by South America ahead of the US and Canada.
Greg Vorwaller, head of global capital markets at Cushman &Wakefield, says: “Global capital flows from sovereign wealth funds have been dominating the market notably from North American funds but with a very diverse base including rising Far and Middle Eastern interest as well as more European buying. To date, the move of global pension funds has been led by Canadian and Far Eastern money but Australian funds are becoming more important as pension allocations there are raised further.
"More Far Eastern and Central Asian players will also be looking to go global and more Chinese funds will also add to the weight of capital in the market in the short-term. Family offices and high net worth individuals are a key part of global demand, and again a very diverse group coming from all corners of the globe. Most adopt a “safety first” approach as long term players and high quality trophy assets in gateway cities are favoured across a broadening lot size range.”
North America will be a favoured market in 2013 despite ongoing political and fiscal uncertainties. Early signs of a recovery in occupational demand together with an improving economy and debt market, low vacancy and high liquidity augers well for investment demand and performance. As a result, a 15-20 per cent increase in investment activity is forecast, alongside modest cap rate contraction , led by the best second tier markets, and a steady normalisation in occupational markets and hence some rental growth. While yields are likely to flatten out for already low cap rate markets, there will be further compression in higher cap rate markets such as suburban offices and industrial as debt availability is boosted by an upturn in CMBS issuance.
Improved macroeconomic conditions with sustainable growth across the region will boost activity and performance resulting in 15-20 per cent increase in investment activity forecast. Investment demand will increase as faith grows in China’s soft landing but demand will also broaden and other markets such as Australia and Japan will be an increasing target for overseas investors while markets such as India and Indonesia are likely to be on the rise. Long term trends such as urbanisation and the increasing middle class will add to demand to access a range of sectors including residential, especially in Chinese cities as well as higher growth markets as Indonesia and Vietnam.
European investment activity is likely to remain subdued in the short term by the lack of quality product and affordable financing but the signs are that more stock released by the banks, the public sector and corporate owners should produce greater activity in 2013 generating a modest five per cent increase.
European market trends will continue to diverge with a number of peripheral European markets bouncing along the bottom for some time.