Global commercial real estate investment dips in 2019

Global real estate consultant, JLL said last week that after a bumpy 2018, the second quarter of 2019 saw investment in global real estate continue to cool as year-on-year transaction activity dipped by nine per cent to $174 billion.

This brings first quarter 2019 investment volumes to $341 billion, nine per cent lower than the same period in 2018 but in line with expectations for the year.

JLL further reports that despite slowing economic momentum and geopolitical tensions, the consequent monetary loosening policies by several central banks are flowing through to commercial real estate markets.

Risk-free rates continue to plummet, lowering financing costs and widening spreads to property at a time when investors are hungrier than ever for yield. Although prices are elevated across many markets, fundamentals remain sound, underwriting is disciplined, and debt levels are generally modest.

Nevertheless, investors are still cautious and selective and we expect global investment in commercial real estate to soften by about five per cent – 10 per cent to roughly $730 billion for the full year.

With the Asia Pacific continuing to outperform, the global decline will be driven by weakness in Europe, the Middle East and Africa (EMEA) and the Americas, particularly in the office and retail sectors.

The sluggish performance seen in the first quarter carried over into the second quarter as an investment in EMEA fell by 20 per cent year-on-year to $57 billion. This brings first-half activity to $109 billion, 19per cent lower than the total from the same period last year.

Brexit uncertainty in the region’s largest investment market and ongoing structural change in the retail sector are major factors behind the slowdown inactivity. Once again, core markets are driving the decline with first-half transactions contracting by double digits in the UK (-36per cent), Germany (-22per cent and France (-12per cent).

The second quarter saw investment volumes in Asia Pacific dip by 2% to US$41 billion. Combined with the robust activity seen at the beginning of the year, this has boosted volumes for the first six months of the year to US$86 billion, the best first-half performance on record. This growth has been largely underpinned by vigorous activity in China (up 97% year-on-year). Similarly, Singapore has rebounded from a relatively weak 2018 as it posted its best-ever half-year volume.
Office capital values still outperforming rents

Prime office capital value growth accelerated slightly during the second quarter to an annualised rate of 6.4% (across 30 major office markets), compared to 5.4% for the full-year 2018. Even so, the underlying trend is still downwards, with capital growth forecast to slow to around 4% by the end of the year.

Amsterdam (+28% year-on-year) and Boston (+23.5%) have been the stand-out global performers over the past year, but Paris (+16.1%) is catching up having recorded the strongest quarterly performance in capital values of the major global office markets during the second quarter.

As JLL looks ahead to the second half of 2019, they still expect investment to decline, by approximately 5-10%, to around $730 billion for the full year as investors continue to respond to the overall global environment.