EDITOR'S LETTER: A dazzling big picture

Let’s indulge in a spot of mixed-metaphors: private real estate investors (both money and management) are like bulls in headlights at the moment. That is a picture being painted by the market and one borne out by statistics.

Brokers Cushman & Wakefield say the $443 billion in capital available for property investing today is more than any amount since immediately after the global financial crisis. There is the bull. But a whirligig of macro-situations is pressing the brakes on investment volumes: Cushman’s sector rival JLL reported a decrease in global investment of 14 percent in Q1 2016, compared with the year before. Those are the headlights.

Fundraising numbers and institutional allocations tell a more positive story of investors still seeing the asset class as warranting greater emphasis than before. But anecdotes from the capital-raising world are reaching us of taps being turned off in the name of caution. We can’t say who, but we’ve even heard that one firm which has been enjoying strong capital support of late is today finding the tail-end of its current European fundraise uncharacteristically tough as a result.

There are five different headlights causing real estate’s abundant liquidity to slow. The first is stock market volatility, certainly in the emerging markets, but the Dow, FTSE and Hang Seng have suffered wide peaks-to-troughs lately and that is causing hard to control denominator effects. The second is the realization of China’s slowing economy. GDP of 6.9 percent might sound good relative to other economies, but if underwriting deals based on a higher rate, it is hurtful. The third is the collapsing oil price. Oil is well off its $27 nadir, but a meaningful recovery is not even being mooted. Political uncertainty in the US and this month’s Brexit vote is the fourth, terrorism and mass-migration, the fifth. The confluence of these factors is causing a slow-up.

Optimists we speak to tell us this is a healthy pause and a more sustainable rise in transaction and capital raising will continue in the medium-term, once enough clarity on some of these situations is apparent. As a pro-market publication, we hope they are right and the bull, less dazzled, can rage on once again.