MIPIM: RE capital falls for first time since 2011

Global capital targeting real estate fell for the first time since 2011, according to Cushman & Wakefield's annual Great Wall of Money report.

The report, released alongside the Tuesday launch of the MIPIM real estate exhibition in Cannes, detailed changes in the investment environment that led to the first year-on-year drop in debt and equity targeting the asset class in six years. By year-end 2016, the “wall of money” decreased 2 percent to $435 billion.

However, 2017's capital levels are the second-highest on record, the Chicago-based advisory services firm said.

The year-on-year decrease stems from a drop in commercial real estate debt issuance compared with 2016. Because the average loan-to-value target has shrunk from 53 percent a year ago to 50 percent, Cushman & Wakefield estimated the available debt shrank from $234 billion to $219 billion.

“Banks and alternative lenders saw a large rise in new debt origination from 2014-2016, but this trend appears to have moderated in 2016 alongside a slowdown in investment transaction volumes,” the report said.

In another first, Cushman & Wakefield found that more capital is targeting the Asia-Pacific region than Europe, the Middle East and Africa, which reflects “the maturity and growth of opportunities across the region as well as attractive long term return prospects.”

US-dollar-denominated capital targeting EMEA decreased 9 percent to $130 billion in 2016, while the Americas increased 2 percent to $173 billion and APAC grew to $132 billion. However, the firm said the drop in EMEA capital in 2017 was a reflection of the US strong dollar; when viewed in terms of euros, available equity was flat between 2016 and 2017.

“Europe continues to show strong signs of recovery and economic growth, which should continue to support allocations to the region,” the report said.

By country, the US remained the most targeted investment market for 2017, with China retaining its second-place ranking and the UK in third.

The report also noted that against the backdrop of a later market cycle, the amount of new equity that funds in market are currently seeking to raise is down 19 percent globally, with funds focused on the Americas and EMEA leading the decline.

“The reduction in new equity raisings is not a surprise as funds seek to focus on deploying capital against the backdrop of strong competition and scarcity of product,” the report said.