RE to get $450bn capital boost – Fidelity International

As much as $450 billion of fresh capital is estimated to be invested in commercial real estate in the next two to three years, according to a research report by Fidelity International.

The London-based investment firm has said the estimated investment volumes will be generated if European and Asian institutions increase their allocation to the asset class by a mere one to two percent in the next two to three years.

The performance attributes of the sector and the need to diversify away from other asset classes are prompting an increase in target allocations to commercial real estate, Fidelity said “two major structural shifts, namely demographic changes and the rapid rise of an Asian economy” are accelerating this growth to higher levels.

Indeed stock market swings in many markets globally, particularly China in the Asian context, has pushed many investors towards relatively safer alternative asset classes such as real estate. Additionally the adoption of low interest rates, even negative in certain markets such as Japan, has contributed to the appeal of the sector.

Fidelity further added in the report that the monetary value of the total targeted increase to global real estate allocations will “run into trillions of US dollars, highlighting a pressing need for the real estate market to open up further and facilitate a growth of new products in order to absorb this new capital”.

“It is certainly not a question of ‘if’, but ‘when’ and ‘how much’ more capital will flow in to the asset class and we envisage some significant implications for real estate markets going forward,” said Iryna Pylypchuk, senior European real estate analyst at Fidelity International. “This year marks the start of the second globalization phase whereby the influence of cross-regional capital will broaden beyond the top 20 global city markets and core sectors. Leading to pronounced escalations in direct real estate investments, as well as via the indirect routes, the bottom line is that once this second globalization wave is in full swing, it will bring significant pricing implications for real estate as an asset class.”