For short-term investors, risk is lowest in the core European markets of Norway, Denmark, the Netherlands, Switzerland and Finland, while highest in Chile, Mexico, Colombia, the Philippines and Turkey, according Chicago-based commercial real estate services firm Cushman & Wakefield’s annual Atlas Summary report released last week.
The report, written by David Hutchings, Emily Tonkin and Sophie Polak of the firm’s capital markets investment strategy team, assessed 50 real estate markets according to six risk factors, including current account deficit, exposure to US trade, energy imports, political stability, past GDP versus forecasted GDP and projected inflation.
On a scale of 1-50, with 1 being the least risky, the top-ranked market of Norway scored 11 in current deficit, 10 in exposure to US trade, 1 to energy imports, 7 in political stability, 24 in GDP and 14 in projected inflation. By contrast, the lowest-ranked country, Turkey, was rated 48, 12, 39, 49, 49 and 48 in the same categories. “Mexico has slipped somewhat due to the uncertainty created by Trump’s potential policy options and Turkey, South Africa, the Philippines and Malaysia are also more vulnerable than most thanks to a mix of current account imbalances, government debt, less market friendly policies in some cases and higher inflation,” the authors wrote.
Meanwhile, India, Indonesia and Thailand are the best-positioned emerging markets for real estate investment, according to Cushman & Wakefield. Those three countries have the best balance of “risk, deficits and growth,” the report said. In addition to strong performance last year, emerging markets will look more attractive to investors in the face of stronger overall US growth, particularly if the economic conditions in those markets continue to improve.
Overall, Cushman predicted that global investment will increase 1.5 percent in 2017 to $1.39 trillion. In 2016, investment decreased 4.4 percent year-on-year to $1.37 trillion.
“The record-breaking weight of investment recorded in 2015 proved an unachievable benchmark for volumes to springboard from, especially given the level of uncertainty in the global political arena,” the report said. “A modest fall of -4.4 percent is not something to lose sleep over, however, as total volumes were the second highest on record, remaining solidly above those recorded pre-global financial crisis.”
The firm projected that of the regional markets, Latin America would see the biggest percentage change in investment volume, rising from $4.1 billion in 2016 to $5 billion in 2017. Cushman noted only North America would see a decline in real estate activity, dropping 1.8 percent from 2016 to $470.8 billion this year. Headwinds in North America include political uncertainty, rising borrowing costs and an anticipated uptick in vacancy amid increased development.