With the 12-month rolling average for global investment volumes standing at over US$1.7 trillion at mid-2019, we are significantly ahead of the US$ 1.25 trillion peak of end of 2007. But global political fragmentation is starting to have an economic impact. Investors are undertaking more selective strategies and a localised network approach to diversification. We are seeing an increasing air of restraint among investors, contending with a slowdown in global economic growth, political upheaval, and a changing retail landscape – these are all factors contributing to the levelling off of volumes across EMEA.
Investors are seeking to drive value and return through re-positioning and increased income streams. This, coupled with a lack of available product, mean we are seeing more diverse strategies in play. As vacancy rates for office and industrial assets fall to historic lows across Europe, the investor community is using a mix of core, value-add and opportunistic plays, as well as increasing their investment into debt and development. And demand for modern space is seeing increased forward purchases, particularly in areas of constrained availability across the Big7 German cities, Benelux, Nordic and UK markets.
Demographic change is shifting the momentum of globally active capital into the living and hospitality sectors, and we are also seeing a sharp rise in global tourism and experiential demand. And while retail remains in the eye of the storm, investment in this sector has expanded since 2017 – just away from traditional shopping centres. It’s still a key component of placemaking in towns and cities, and where it is right-sized and relevant to communities and consumers, will continue to be a valuable investment.
This week in Munich the words ‘sustainability’ and ‘smart cities’ were on everyone’s lips. There is a growing list of major investors signing up to tackling climate change and reduce their carbon footprint, which in turn impacts the assets they will acquire and hold. This runs concurrently with a drive for real assets, particularly clean infrastructure and alternative energy, that helps to drive a better carbon footprint.
Our research is showing significant differences between cross-border and domestic capital across Europe, Asia-Pacific and North America. Europe is offering the most internationalised markets – with the share of domestic and cross-border activity balanced at 50% each. While in Asia-Pacific, this is true for Hong Kong, Singapore and Shanghai, the cities of Seoul and Tokyo remain highly domestic. North America is the same – highly domestic, with national investors accounting for over 80% of activity.
Focusing on how the European market has changed, Richard Divall, Head of Cross Border Capital Markets said this week, “Although Singaporean capital remains very acquisitive this year, Chinese buying activity has curtailed. South Korean capital has taken over the reins for core product in the traditional property sectors but also buying into the hospitality sectors. We are starting to see a re-emergence of Australian and Japanese capital making bidding in-roads, with North American capital getting back into Europe after a few years of recalibration and divestment.”
Colliers’ Head of Research, Damian Harrington, agrees. “We expect a continuation of this shift in capital and perhaps a resurgence from China into 2020. However, their strategies will be in a different guise to what we’ve seen over the last few years. Major global funds will remain active, but for those that consolidated in the last 12-18 months, there may be a reduced level of activity until existing assets and portfolios are asset-managed to reflect what they want to hold longer term. At which point we may see some assets coming back to the market. Equally, South Korean may find it has exhausted many of the higher yielding opportunities available in Europe and will shift some of their focus to North America where they can achieve a higher yield differential.”
Back to the conference, it probably comes as no surprise to many that the home of Expo Real, Germany make up the biggest net investors across Europe. Significant players into the UK, Nordics and Central and Eastern Europe, they also remain the number one market for investment flows in 2019. As Richard Divall, Head of Cross Border Capital Markets I EMEA explains, “Investors are still buying and demand for commercial property continues, they are just changing what and where they buy.”