Global real estate investment volumes hit a record $1.75 trillion in 2018, with enthusiasm for brick and mortar expected to extend into 2019.
The transactions represent a 4 percent increase from the $1.68 trillion reported in 2017, according to the Global Investment Atlas report by real estate services firm Cushman & Wakefield.
The rise in real estate transaction volumes has been driven by global investors’ desire to diversify their portfolios, according to C&W’s head of EMEA investment strategy David Hutchings. Though concerns around geopolitical tensions, monetary policy and market cycles persist, these risk factors affect all markets and asset classes, he said. Compared to other asset classes, real estate may look more attractive to investors because of its relative yield.
Investors are also looking to geographically diversify their real estate investments, driving both overall transaction volume and cross-border investments, according to Hutchings. “At the end of the day, there is no safe market,” he told PERE. “Once upon a time, people thought that was the UK, but then we had Brexit. It’s a much more fluid and dynamic investment picture than we’d normally see.”
The uncertainty of Brexit, interest rate hikes and other factors have led investors to spread their investments around the globe and to focus more on steady income from tenants than property appreciation. Investors have also been showing more interest in demographically-driven alternative property types, Hutchings added.
Going into 2019 and 2020, he predicts a dynamic property market where investors bounce between regions of interest. He expects Asia and Europe to be the regions that investors will focus on, given Asia’s population and wealth growth trajectory and Europe’s lagging interest rate cycle. Indeed, the Asia-Pacific region observed $866 billion in real estate transactions during 2018, accounting for nearly half of the total property investment volume. Europe accounted for almost 19 percent while North America and Latin America made up 31 percent and 0.2 percent of the total, respectively.
Though North America saw the second highest real estate transaction volumes after Asia-Pacific, Hutchings expects the trend to change as investors lower their allocations to US real estate. The US is slightly ahead in the property cycle and interest rate cycle compared to the European market, he observed, noting that investors will invest less in the US as interest rates continue to rise and hedging costs increase as a result of a strengthening dollar.
For cross-border investments, North American investors led the way in 2018. The most active outbound source of capital came from the US and Canada, accounting for 40 percent of all non-domestic real estate investments over the year. The top three countries receiving international capital in 2018 were the US, UK and Germany, respectively.