Currency movements during 2018 slowed the growth of the global real estate investment market, according to global index and research firm MSCI.

In its latest report, Real Estate Market Size 2018, the firm said the global real estate investment market had increased to $8.9 trillion last year, compared with $8.5 trillion in 2017. However, Will Robson, MSCI executive director and head of real estate solutions research, said shifts in the values of currencies meant the contribution of capital appreciation and residual growth to that total had been subdued.

He said that if currencies had not depreciated against the US dollar, the market would been valued 2.6 percent higher, at $9.1 trillion.

On a country basis, currency movements resulted in a more than 7 percent loss relative to the US dollar in Sweden, Canada, Australia and South Africa. Euro-denominated countries experienced a 5 percent loss when pegged to the US dollar during the same year. In fact, Japan was the only country in the report that did not suffer a negative currency impact, instead experiencing a 3 percent positive impact. In comparison, currency movements had a broadly positive impact, of 5.3 percent, across almost all countries in 2017.

Although currency impact was largely negative globally, most countries experienced positive capital growth in local currency terms. Robson said the main contributor to the growth in the size of the real estate market size had come from the capital values of the buildings themselves. He added that most places in the market were experiencing positive capital growth, but that appreciation had slowed compared with previous years due to yield compression.

“The yield compression that has been a great contributor to capital value growth has been ebbing away,” Robson told PERE. As real estate investors have increasingly been willing to pay more for the same cashflows, the yields on those cashflows have compressed, he explained. This compression means yield has been accounting for a smaller portion of the properties’ capital value growth. Many real estate markets are now experiencing record low yields, a symptom of being in the late stage of the real estate cycle.

Hungary experienced the greatest capital growth of the countries surveyed, reporting 17.4 percent appreciation in 2018. The Netherlands came second with 9.7 percent. In fact, most countries exceeded the 2.8 percent capital growth reported for the year by the MSCI Global Annual Property Index. However, the US and China missed the benchmark, reporting 2.5 percent and 2.3 percent respectively.

According to Robson, the emergence of new product on the market and the transfer of owner-occupied or non-professionally managed property to institutional managers also contributed to the global market size. However, he said the effect tended to be marginal and to have a greater impact on emerging markets.

The US was again the world’s largest real estate investment market in the MSCI Global Annual Property Index, growing to $3.15 trillion compared with the $2.97 trillion reported in 2017. Its closest rivals, Japan and the UK, trailed behind with estimated market sizes of $831 billion and $713 billion respectively. China had an estimated market size of $540 billion in 2018, coming in as the fourth largest market and overtaking Germany. Bumped down to fifth place, Germany’s estimated market size came in at $535 billion.

In the 25-country index, the US was most heavily weighted at 40.9 percent and followed by Japan, the UK, Germany and France, which reported index weights of 10.8 percent, 9.3 percent, 7 percent and 5.5 percent, respectively. All other countries reported index weights less than 5 percent. China was not included in the index.