MIPIM 2016: $235bn of debt capital is targeting global CRE says Cushman

A total of $235 billion of available debt capital is targeted towards global commercial real estate, according to new research unveiled at MIPIM by Cushman & Wakefield.

A total of $235 billion of available debt capital is targeted towards global commercial real estate, according to new research unveiled at MIPIM by Cushman & Wakefield.

The amount of available debt capital across the globe was up slightly from the end of 2014, when it stood at $232 billion, according to the firm’s Great Wall of Money report, which is in its twelfth edition. The report, which was previously produced by DTZ prior to its 2015 merger with Cushman & Wakefield, tracks the amount of newly-raised capital targeting real estate at a global level.

In the Europe, Middle East and Africa (EMEA) region, the volume of available debt capital stood at $68 billion at the end of 2015, down $1 billion during the year. The volume of available equity was $75 billion, up from $72 billion.

In the US, the volume of available debt was $96 billion, stable on 2014, with available equity up from $70 billion to $73 billion. In Asia Pacific, available debt was $71 billion, up from $67 billion. Available equity was $61 billion up from almost $55 billion in Asia.

The global CRE sector remains conservatively geared, with the lowest leverage to be found in the EMEA region averaging 48 percent. Gearing across Asia Pacific averaged 54 percent, while the Americas was at 57 percent. Leverage broadly edged down very slightly across all regions, the research showed.

“The low levels of gearing not only reflect conservative terms offered by lenders but also discipline from investors,” said report author Nigel Almond, head of EMEA capital markets research at Cushman & Wakefield. “We would not be surprised to see activity above these levels – though clearly it highlights that both investors and lenders are disciplined on risks.”

The record $443 billion of capital targeting global CRE was up 3 percent on the previous year and is the highest recorded since the analysis began in 2009. However, the pace of capital raising is slowing as a result of investment activity reaching record levels in some markets. The 3 percent increase compares to 21 percent in 2014 and reflects how actively investors have deployed capital.

dollars-hed-2013Actual raised capital has started to decline, albeit by less than 1 percent from $408 billion at the end of 2014 to $407 billion at the end of 2015, indicating that funds are focussed on deploying capital. In EMEA, raised capital fell 4 percent to $131 billion. Asia pacific, by contrast, saw a modest rise of 3 percent.

The amount of capital currently being raised has increased from $21 billion to $36 billion, reflecting a recent flurry of announcements from large scale players such as Blackstone. In Europe, M&G recently closed a €265 million long-lease fund and in Asia Pacific, money has flowed into a number of Chinese logistics funds.

More than 40 percent of capital targeting both Europe and Asia Pacific is from outside the regions, with North American-sourced funds dominating in both cases.

By investor type, 56 percent of capital is in the hands of unlisted funds. However, unlisted funds’ share of the total has been gradually shrinking during the last two years, suggesting that such funds are putting their capital to work. Listed companies have broadly maintained their share at 23 percent.

“As global equity markets face increased uncertainty, factors such as quantitative easing and lower-for-longer interest rates will sustain the relative attractiveness of commercial real estate, helping to bolster the continued flow of capital into real estate and related funds,” said Carlo Barel di Sant’Albano, chief executive of Cushman & Wakefield’s global capital markets and investor services business.

“With available capital at record levels, effective deployment becomes a critical concern for investors. This will benefit the large and liquid markets of the US, China, UK, Japan and Germany. We also expect the strong momentum of cross border flows to continue as investors seek to diversify across markets,” he added.

Cushman said that it anticipates record levels of new capital for investment in CRE, supporting the 4.2 percent growth in investment activity predicted for 2016.