According to CBRE’s Global Investor Intentions Survey 2015, global real estate investors remain confident and their intentions are expansionary, with more than half planning to increase their acquisitions in 2015.
Globally, 53 percent of investors plan to increase their purchases this year. Investor appetite for cross-regional acquisitions has increased significantly with 38 percent of respondents intending to invest outside their own region this year–up from 28 percent in 2014. Among these investors, 31 percent identified Western Europe as the top destination. Despite the slowdown in China, 27 percent of investors regarded Asia as their preferred investment destination, with economic growth there still outpacing other regions and continuing to offer significant long-term growth potential.
London retained its position as the top city for investment, while other gateway cities such as Tokyo, Sydney, New York and Paris remained in the top ten. Second-tier cities saw an increase in investor interest in 2015, with Madrid, Dallas and Seattle all making the top ten. This reflects investors’ search for more attractive yields, as well as greater knowledge and comfort with a larger number of global cities. There is also a marked increase in appetite among investors from Europe, Middle East and Africa (EMEA) and North America for value-add and opportunistic investments. In contrast, Asia Pacific saw a significant jump in investors preferring prime core assets at 43 percent in 2015, compared to 29 percent last year.
Chris Ludeman, Global President, CBRE Capital Markets, commented: “The appetite for global real estate investment is increasing as more investors intend to deploy capital outside of their own region this year. Competition for assets is intensifying and many investors plan to move out the risk curve in search of higher yields–a trend that will result in a stronger focus on value-add and opportunistic investments. We believe that a low interest rate environment, economic expansion in an increasing number of markets, and corresponding improvement in real estate fundamentals will attract capital to commercial real estate”.
Office and industrial remain the preferred asset classes, selected by 33 percent and 29 percent of investors respectively. Investor interest in industrial and logistics assets is being driven by the structural change in the retail sector and the growth of e-commerce; however, there is a limited supply of assets in this sector available for sale, meaning that investors will continue to face challenges when sourcing deals.
Half of respondents identified asset pricing as the top obstacle to acquiring real estate assets. The tight availability of assets (21 percent) and competition from other investors (19 percent) were also identified as obstacles in all regions.
Richard Barkham, Global Chief Economist, CBRE, commented: “The “new normal” economic environment of moderate growth, low interest rates and compressing bond yields continue to drive investment in commercial real estate. We also observe the continuing globalization of the investment market, reflected by the 40 percent y-o-y growth in cross-regional capital flows in 2014–a figure well above the growth rate for the market overall. The survey findings strengthen our view that overall volumes and cross-regional investment will increase in 2015”.
Valentin Gavrilov, Director of Research, СBRE in Russia, commented: “After low activity in Q1 2015, when investment transactions amounted to just USD 350 million, the first signs of recovery are appearing. During first 4 months of 2015 investment volumes exceeded USD 700 million. Given earlier indicated investor interest to some properties, this indicator might grow by additional a few hundreds millions USD in May-June.
Acquisitions of commercial space by tenants also indicated noticeable growth. In Q1 owner-occupiers bought more than 400,000 sqm of office space, which is equivalent to 21 percent of the volume of new leasing and renegotiations transactions combined. In I&L segment we see owner-occupiers transactions, which are as large as 100,000 sqm.
Increase in investment activity is explained by increasing probability of scenario, in which currently the market is close to its cyclical low. Better than expected dynamics of a number of macroeconomic indicators, as well as noticeable appreciation of Rouble since January 2015, contribute to positive sentiments.
One should mention that market uncertainty is still pretty high. The risks are associated with still remaining geopolitical issues and possibility to see one more downward wave in oil prices under the influence of, say, perspectives of Iran, coming back to oil market, or world economy, slowing down its growth. High new delivery and its upward pressure on the vacancy remain important risks for office and retail segments.
However, chances for faster than expected recovery of demand for commercial space increased since the beginning of 2015. Now it is the key decision-making driver for investors, which are ready to take higher risks. Potential of growth in asset price is estimated at 40-50 percent during the next 2 years, which is very attractive for some players”.
