Investment in global commercial real estate remained steady in the third quarter of 2018, with investment volumes totalling US$170 billion. Year-to-date total volumes now stand at US$507 billion, a 7% increase over 2017, following a robust start to the year.
Investors continue to contend with trade tensions and political uncertainty, as well as rising U.S. interest rates and volatility in energy markets. In this environment, real estate investments continue to look appealing – especially as occupier fundamentals remain buoyant and returns look attractive. We project that global investment volumes for 2018 will edge above those seen last year to US$730 billion, and will be around US$700 billion in 2019 as investors remain selective and reluctant to recycle capital, given limited income-producing alternatives.
Investment in the Americas continues to mount a comeback following the two-year slowdown that started in 2016. In the third quarter, volumes reached US$74 billion – a 20% increase on the same period in 2017 – boosting year-to-date transactions to US$206 billion.
The U.S. was the major driver of this rise in volumes, registering 25% year-on-year uplift during Q3 2018. Demand remains strong for higher-yielding strategies, including value-add and secondary market opportunities, with private equity and cross-border investors showing appetite for real estate. While further rises in long-term interest rates represent a risk factor worth monitoring in the coming months, large-scale investments remain in demand – with three entity-level transactions closing in the latest quarter.
Investment activity in EMEA fell 14% year-on-year to US$63.4 billion, although the year-to-date total represents a 1% increase over 2017 levels with a strong euro providing a helping hand. Looking forward, full year 2018 volumes are expected to show a 10% decline on last year. Investment capital is still flowing into UK real estate, as London remains the world’s largest investment destination, but confidence could be dampened if the UK and EU fail to reach an agreement on ‘Brexit’. Germany and France continue to look strong (up 20% and 30% year-to-date respectively).
Investment activity across Asia Pacific has levelled off in the latest quarter, following a strong first half of the year. However, year-to-date volumes have risen by 20% to US$117 billion, their highest level on record. Transaction volumes in both Japan and China rose year-on-year (10% and 14% respectively), while Seoul was the stand-out market in the region as investment volumes rose 86% year-to-date to an all-time high. Higher interest rates and aggressive pricing put the brakes on transaction volumes in Hong Kong during the third quarter, but remain up 82% over the first nine months of the year at record levels.
Prime office capital values grew by 6.4% over the year to date across 30 major office markets, with a full year forecast of 5.5%. Europe accounts for four of the leading five markets globally, with Amsterdam, Madrid, Berlin and Milan joined by Hong Kong at the top of the rankings. Capital growth is expected to slow to around 2% for full-year 2019, as rental growth moderates and yields flatten.
Recent investment transactions