Fourth quarter bounce lifts global investment volumes

Global real estate transaction volumes for the fourth quarter of 2017 came in at US$228 billion, 10% higher compared to the same period last year. This brings full-year volumes for 2017 to US$698 billion, 6% above last year’s total. While political uncertainty still looms, investors remained confident in the performance of the real estate sector, reflected in fourth quarter 2017 global investment volumes surpassing the previous quarterly peak set in 2014.

U.S. market cools, while Europe and Asia Pacific see further gains

Continuing the trend seen throughout 2017, fourth quarter volumes in the Americas were 15% lower than we recorded in 2016, with full-year activity down 12%. Once again the U.S. was the epicentre of this decline as full-year volumes fell 16% to the lowest level since 2013. On the other hand, Canada continues to be a bright spot in the region while Brazil outperformed after back-to-back years of relatively slow activity with volumes in 2017 up 166%.

Sustained investor appetite for European real estate led to a 22% increase in volumes during 2017, with all European regions registering growth. Driving this performance was the UK, where annual volumes were up 37% in the year after the Brexit vote. Germany and France also continued to perform strongly, while the Dutch market recorded the highest levels of activity on record.

For the second year in a row, the fourth quarter of 2017 set a new record for quarterly transactional volumes in Asia Pacific as investment activity ticked up 16% from the record levels set in the fourth quarter of 2016. This brings annual activity 13% higher than 2016, led by the region’s two largest markets, China and Japan, where annual volumes were up 5% and 10% respectively. Double-digit growth in Hong Kong, South Korea, Australia and Singapore rounded off the very solid year for the region.


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Softer investment activity expected in 2018

Although global markets continue to be liquid, the relative lack of product combined with continued investor discipline are likely to limit investment growth in 2018 and we expect global investment volumes to soften by 5%-10% to around US$650 billion. Nevertheless, investors are still keen to access the sector and are now looking to new strategies such as debt financing, M&A and alternative sectors as the search for yield continues.

Income growth supports capital appreciation

Income growth on prime assets across 26 major office markets underpinned capital appreciation of 6.0% in 2017. Capital growth for prime office assets in 2018 is expected to slow to around 3%-4%.

Eight of the 26 major office markets have recorded double-digit capital value growth over the past year, as a result of steady income growth and further yield compression. Hong Kong, Stockholm, Sydney and Frankfurt topped the table of capital appreciation in 2017. This year should see Moscow and Sao Paulo record strongest capital growth, as they move into a recovery phase.

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