2013-11-22

Despite economic and political turbulence, global commercial real estate investors will be more willing to take risks in 2014

The United States has emerged as the most desirable destination among global investors, despite recent political turmoil and economic uncertainty, according to the latest Global Investor Sentiment Survey by Colliers International. 

Overall, the survey found optimism about the economic outlook for 2014; and with this increased confidence, many investors are planning to expand, especially in “safe-haven” cities around the world.  The survey findings come at a time when investors are paying close attention to one another’s strategies, as competition for good investment opportunities increases. 

The survey respondents included major institutional and private investors who were asked for their outlook at both the global and regional levels for 2014 and beyond. With more than 500 responses from the U.S., Canada, Latin America, Asia Pacific, Europe and the Middle East, the results highlight a number of key indicators suggesting strong investor appetite for real estate assets, heightened confidence among global investors and increased risk tolerance, even in areas where the economy is less certain. 

Discussing one of the more surprising findings this year, Mr Tony Horrell, CEO, U.K. and Ireland, Colliers International, who leads the survey, said, “Worldwide, investors are willing to look beyond political circumstances and invest in areas with strong property fundamentals. In many regions, like the United Kingdom and Asia, investors are willing to take more risk on opportunities that will generate higher returns due to a clearer economic outlook and improving values.”

“Globally, investors are looking to grow, with 70% of them planning property portfolio expansions over the next 6 months,” adds Mr Horrell. “Overall, investors are optimistic about entering the market at such a dynamic time.”

Asia

Most Asian investors surveyed (62%) believed that Asia’s property markets will improve over the next 12 months.  41% of the Asian investors believed that the investment volumes in the region will increase between 1% and 10% in 2014.  This is compared to the findings in the survey done last year, in which 41% of the Asian investors felt that investment volumes in the region would increase over 10% in 2013.  

Mr Terence Tang (鄧文傑), Managing Director of Capital Markets & Investment Services, Asia at Colliers International, says, “The more conservative attitude of Asian investors is in line with concerns that interest rates may rise.  In Hong Kong and Singapore, the introduction of various government cooling measures in both the residential and commercial sectors during 1Q 2013 dampened investment demand in these markets. However, some selective investment transactions showed that cash-rich end-users remained active in the sales market to hedge against rental volatility.”

According to the views of Asian investors surveyed, they believe that capital will continue to flow into Asia, which is where the growth is. However, the liquidity inflow may not be as strong as 2013, as risk aversion is likely the concern of Asian investors in the year ahead, amid worries about an end of the current low interest rate environment around 2015. 

Key takeaways from Colliers’ newest Sentiment report include:

  • Shifting Focus on Fundamentals: Increasingly, investors are shifting decision-making criteria to focus on property fundamentals and yield. In the U.S. and the U.K., a shortage of commercial property is driving investor confidence. 
  • Increased Risk Appetite: In several regions, investors are becoming more willing to take risk when it comes to future investments in order to generate higher returns. However, EMEA investors remain cautious after the Eurozone crisis.
  • Expansion on the Horizon: 70% of the survey respondents plan to expand property portfolios in the next 6 months. In the U.S. and U.K., where steady economic improvement is expected in 2014, foreign and domestic investors will continue to drive capital flows. The survey shows continued growth in Asia outbound capital with investors spending $44.7 billion dollars on property outside their own country according to Real Capital Analytics (RCA) year-to-date Q1-Q3, 2013.  
  • Greater Competition in Stable Markets: Many investors cited difficulties in finding good investment opportunities, despite having plenty of capital. As a result, competition is growing in stable markets as investors strive to maintain secure returns. A large amount of capital is flowing from high-risk nations into more liquid safe-haven markets, especially gateway cities such as London, Tokyo, Sydney, and New York City, which remain popular destinations for both cross-border and local capital.  
  • Keeping Capital Local: Most survey respondents prefer to invest in markets close to home, with only 10% looking outside of their domestic region for investment opportunities. Some who choose to invest across borders are sticking close to home regions, with Canadian investors spending nearly US$8 billion dollars on property in the U.S. alone. U.K. investors are focusing on European markets spending US$7.8 billion dollars on property investments outside their own country between fiscal Q1 and Q3 2013 according to (RCA).  
  • Office Properties are Popular: Globally, office property investment is the most popular, with industrial and logistics close behind for U.S. and Latin American investors. For Canadian buyers, retail takes the top spot, fuelling billions of dollars of capital growth domestically and in the U.S, as retailers look to expand into new markets.
  • Cost of Debt Expected to Rise: Nearly half of the survey respondents expected the cost of debt to rise. Most investors are keeping a close watch on the U.S. Federal Reserve as it recovers from the 2013 Government Shutdown. However, large increases in transaction volume in secondary markets, such as Las Vegas, Indianapolis and Philadelphia, indicate increased optimism in the U.S. Government’s ability to recover.

Mr Horell concludes, “Higher confidence will lead to greater investment in the coming year, even as buyers face the challenge of finding attractive opportunities.  Investment criteria will have to be more flexible!” 

For more details and to view the full 38-page report, click here.