The most desirable region for heightened global investment in real estate in the coming year will be the United States, followed by Asia and Western Europe, in particular London, Paris and several of the major cities in Germany; according to the results of the Global Investor Sentiment Survey just published by Colliers International.
The survey respondents included major institutional and private investors representing a broad cross section of property investors globally, who were asked for their outlook at the global and regional level for the coming 12 months and beyond. With nearly 500 responses from the most active real estate investors from the US, Canada, Latin America, Asia Pacific, Europe and the Middle East; the results highlight a number of key indicators suggesting improved investor sentiment, such as ambitious expansion plans through 2013 and migration of funds for offshore investment opportunities. A lack of quality stock and availability of finance are the primary obstacles to expansion plans.
Highlighting the most noticeable trend this year Tony Horrell, CEO, U.K. and Ireland, Colliers International said,“Major investors are becoming more critical when selecting their investment locations. This is supported by the overarching themes we found when asking respondents about their investment strategies – they are more likely to look at home locations first, and when they do look at international opportunities, they are far more specific about the individual markets and sectors in which they are interested.
Horrell added: “The survey also found that the availability and price of debt finance will remain an issue in a number of territories, particularly in EMEA, as stringent lending requirements endure and LTVs remain low. This is opening the door for new lenders, in the form of insurance companies, and the resurgence in the provision of mezzanine finance. As a result, we anticipate more activity from specialist debt funds seeking higher returns than those available from core direct real estate investment.”
Key takeaways from Colliers’ 2013 Sentiment survey include:
- Continued Recovery: Investment volumes are expected to grow slowly and steadily in Western markets through 2013, and core investment opportunities will become more difficult to find as investors hone in on just a few key locations.
- Home or Away: Asian, EMEA and Latin American investors were the most likely to access funds from outside their regions. Asian investors sourced just 40 per cent of funds locally with the United States (20 per cent) and Western Europe (19 per cent) providing significant capital. In Latin America, the US provides almost a third of all funding with Western Europe providing just under 15 per cent. Canadians are almost self-sufficient with around 78 per cent of investment funded locally.
- Safe Haven Destinations: Investors consistently chase properties in the same, “safe” markets including London, Paris, Frankfurt, Hamburg, Munich and New York. London and New York are the only two markets identified as key investment areas by investors from other regions. Investors will continue to target these markets through 2013, while monitoring the effects of the U.S. election result and continuing problems in the Eurozone.
- Local vs. Offshore: Though many investors prefer to invest in their local markets, there are those (approximately 25 per cent) that are taking their real estate ventures overseas. Investors who look offshore tend to favour Western Europe. In addition, some Asian investors are likely to explore property opportunities closer to home in Australia and New Zealand.
- Risky Business: Wealth preservation and secure income are still a priority for the majority of investors. However, in the next six months, investors in the U.S., Asia and Latin America are the mostly likely to take on more risk.
- Sector Preference: Investors have shown a strong preference for the office sector from a global standpoint. In the U.S. and Latin America, the industrial sector ranked highest, whereas Australia, Canada, and New Zealand saw increasing interest in shopping center investments.
- Debt Hurdles: Most Europe, Middle East and Africa (EMEA) markets will continue to struggle with securing debt in 2013, and specialist debt funds pursuing higher returns are expected to see more activity. Investors in the Asian markets were identified as the most likely to extend debt, while investors in Latin America tended avoid taking on more debt.
In EMEA specifically, Colliers has uncovered several key findings including:
- Despite Europe’s economic woes and the fears of a Eurozone break-up, many European investors (60 per cent) see this period as a good time to invest, with a similar proportion looking to expand their portfolio in the short term.
- London and major German cities continue to attract international investment due to their safe haven status. In particular, 74 per cent of investment in London has been from or involved international sources through October this year.
- Lack of supply is seen as a key constraint, particularly given investor focus on CBD offices, and the scarcity of development in many European markets that has exacerbated the shortage of high quality properties.
More activity from global investors in Greece in 2013 is estimated because the first signs of privatizations are evident. In Q3 2012, the first major investment sale through privatization took place, the Usufruct Right on the Exploitation for 90 years of the International Broadcasting Centre (IBC) to Lamda Development, the highest bidder. Although it is just the beginning, it is expected to speed up privatization projects and plans, sending a message for a business friendly framework that can upgrade the role of Greece and its potential for economic recovery and growth. Ultimately, in the future reviving investment transactions in Greece and stimulating investor sentiments.
Ana Vukovic, Managing Director to Colliers International Greece comments: “The scenario of a “Grexit” starts to deviate following recent progress in talks and negotiations between Euro Zone, IMF and Greece. The new bailout package is going to reduce dramatically the sovereign debt leading to a more secure period. Recapitalization of domestic banks, combined with higher absorption rates of credits from European funds, and improvements in the country’s competitiveness through reforms are expected to stimulate the investment market.”
Looking to the future Tony Horrell concludes: “In 2013 we will see more new lenders and mezzanine funds to partially replace the void left by retreating mainstream banks. And more generally, 2013 will be a year of continued recovery, with investment volumes showing modest growth as investors accept the new norm and sentiment improves.”