Primary target markets will continue to draw the most interest, with moderating risk appetite, stable economic conditions, and low interest rates driving increased investment in secondary markets. Transactional activity in the first nine months of 2015 confirms this assessment, with $625 billion of direct property investment worldwide, representing an 11 percent increase over the same period of 2014 (Real Capital Analytics).
“Our global analysis in this report gives a unique macro-view, providing a comprehensive look at the health of the economy as well as in-depth views of market sentiment that serve as a useful bellwether for local markets worldwide,” said John B. Friedrichsen, Chief Financial Officer, Colliers International. “Our report suggests that the days of ‘pass the parcel’ are over, and long term secure investment in core markets will be the norm. At the other end of the risk spectrum, large volumes of capital already raised will increasingly seek out opportunities in tier-two cities and recovering markets,” he added.
A key finding of the report indicates that of the more than 600 investors Colliers surveyed, over half (52 percent) will increase fund allocations to real estate in 2016, while only 11 percent plan for a decrease. Real estate investment is therefore on track for continued growth in 2016, with the global investment community bullish, especially in the U.S., but also in other core markets in Europe and across the globe.
Key takeaways from this report include:
- Real estate continues to appeal. Sentiment toward real estate remains positive, with global transactions set to exceed 2014 levels by year end and nearing pre-financial crisis levels. More than half of the respondents with multi-asset portfolios also said that they would increase their real estate allocations in the next 12 months.
- Liquid markets still preferred. While the ‘search for yield’ has pushed some investors up the risk curve toward secondary assets and more peripheral markets, the most liquid markets (U.S., U.K., Germany, Australia and Japan) and global gateway cities (London, Paris, New York, San Francisco, Tokyo and Sydney) remain the primary target for global cross-border investors over the next 12 months. In entering peripheral, higher-yielding markets, liquidity is being seen as an obstacle.
- Hot pricing. 2016 will see a greater emphasis on secure income and asset management to drive performance. For some investors, it’s getting harder to achieve return expectations, particularly in ‘overcrowded’ core markets, which are seen as expensive and fully priced by many. Some fund managers cite a growing misalignment between their client return expectations and what the market offers.
- Risk appetite moderates. International investors remain confident, but recent economic volatility and geopolitical events have made them more cautious. In particular, there is apprehension that the economic environment could change at any time. China and U.S. interest rates are just two issues resonating with investors.
- Local partnering. Colliers’ survey results show that more global investors will partner with local expertise and acquire platforms as a means of placing substantial amounts of capital with confidence.
- Return of debt. More investors will use debt to finance acquisitions, suggesting that the equity phase of the cycle is giving way to a debt phase. This is particularly true of Continental Europe, where interest rates are likely to stay low for longer and further QE rounds from the ECB are expected.
For more details, the full Colliers International Global Investor Outlook for 2016 is available for download at http://GIO.colliers.com.