Global real estate trading activity will jump 4 percent in 2016 to a record $1.34 trillion despite declining slightly in 2015, according to a Cushman & Wakefield report released at MIPIM today.
The increase is driven by new sources of capital, unsatisfied demand and a strong supply of debt, the New York-based real estate services firm said. This projected increase comes after global trading activity fell in 2015 for the first time in six years, down 2 percent to $1.29 trillion. Cushman & Wakefield said last year’s decrease came from the strength of the US dollar and investment pullback in Asia. However, when development land was excluded, global volumes rose 8 percent, according to the report.
If global volatility decreases, 2016’s projected real estate activity could be more than $1.34 trillion, the firm said.
“Geopolitical issues, length of the recovery cycle, volatility and increased uncertainty are leading to differing views with respect to asset allocation and how best to invest,” said Carlo Barel di Sant’Albano, the firm’s chief executive of the Global Capital Markets & Investor Services business, in a statement Tuesday. “This is benefiting real estate as allocations to the sector increase, boosting demand for assets.”
Changes in foreign exchange also disrupted real estate, pulling investors toward the US while other currencies experienced dilution. The firm noted that global volumes fell 2 percent as measured in the US dollar, but gained 17 percent in euros.
“In this economic environment there is also an increasing number of willing sellers aiming to crystallize returns,” Barel di Sant’Albano said. “Performance is yet to peak, with yields not yet at their floor and a slow improvement in occupational demand pushing rents slowly ahead.”
By region, Cushman & Wakefield forecasted volumes in Europe, the Middle East and Africa (EMEA) to rise 5 to 10 percent in 2016, with yields falling 30 basis points, spurred by the low cost of capital and quantitative easing. In North America, the firm predicted the US would continue to see a rise in volume and values driven by an interest rate policy that will drive the dollar higher. Cushman & Wakefield highlighted Chicago, Los Angeles and Boston as core cities with liquidity and economic growth that will attract the most buyers.
In Asia-Pacific, the region will likewise see positive volume growth in 2016. Lack of stock could constrain core and core plus activity in Japan and Australia, offset by activity in core Chinese cities, Singapore and South Korea.
“Productivity is key in what is now an asset, not a sector, pick,” said David Hutchings, the firm’s head of EMEA investment, in the report. “In strategy terms, focusing on cities rather than countries or sectors is beneficial, but, above all, the mantra will be ‘change not growth’ as investors seek out security and performance.”