Global real estate will benefit from the increase in geopolitical uncertainty and financial market volatility in 2016, though the risk of overpaying is rising, says Cushman & Wakefield.
At MIPIM in Cannes this morning the international real estate services firm predicted that global trading volumes will rise 4 percent this year and that this base case “could easily be bettered if current global volatility levels stabilise or decline.”
“New sources of capital, unsatisfied demand and a strong supply of debt is likely to result in global real estate trading activity rising 4% to reach a record US$1.34tn in 2016,” the firm predicts.
Cushman’s chief executive of global capital markets, Carlo Barel di Sant’Albano, commented: “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.
This is benefiting real estate as allocations to the sector increase, boosting demand for assets. In this economic environment there is also an increasing number of willing sellers aiming to crystallise returns. We therefore forecast a 4% increase in trading this year, which could easily be bettered if current global volatility levels stabilise or decline.”
The firm believes North America will perform well again in 2016 with further growth in activity and rising values underpinned by the occupier market. The increase in interest rates will drive the dollar higher and draw in capital with core cities attracting most buyers, led currently by Boston, Chicago and Los Angeles.
Cushman forecasts a return to positive volume growth in Asia-Pacific with land markets stable and demand for built commercial space steadily increasing.
However, in Europe the firm admits that the asset price inflation and plentiful debt that is being sustained by further quantitative easing means there is an increasing risk that capital will be “misallocated”, even as these factors “bring good levels of activity and growth in the short term.”
Cushman is forecasting that European volumes will rise 5-10 percent and yields fall 30 basis points in 2016.
Year on year comparisons of volumes are made difficult by currency volatility. In US dollar terms global volumes fell slightly in 2015, by 2 percent, but in EMEA, for example, volumes were flat in dollar terms but up 23 percent in euros.
David Hutchings, Cushman & Wakefield’s head of EMEA investment, said: “The strategy focus for the year ahead should be assets that work for the occupier, not the banker. Productivity is key in what is now an asset, not a sector, pick. Investors are likely to focus on accessing the best local intelligence, resulting in more joint ventures and M&A activity. There will be certain common strategic themes to follow, including the potential for ‘build to core’ in gateway markets, providing modern flexible retail, office and residential space, and feeding demand for modern, urban-based logistics.
“Moves into other sectors are also likely to accelerate, with mixed-use developments and flexibility of use increasingly desirable. 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. Both stem from the value the property not only creates but also sustains for its occupier.”