Global real estate transaction volumes for the first quarter of 2018 came in at US$165 billion, 15% higher than the same period last year, with activity underpinned by favourable macro-economic trends in the world’s major economies. Despite growing trade tensions and elevated stock market volatility, investors have remained committed to global property with first quarter activity reaching its highest level since Q1 2007.
After four successive quarters of declines, the Americas reversed its losing streak as year-on-year investment activity in Q1 rose by 18%. Driving this uptick is the U.S., where volumes were up by 23% to US$63 billion, the highest first quarter total since 2015. Elsewhere in the region, Brazil continues to see elevated levels of liquidity despite ongoing political concerns, while in Canada volumes were down 28% on an active beginning to 2017, but remained much higher than the historic first quarter average.
The European market started off the year on a steady footing as first quarter volumes were level with Q1 2017 and 18% higher than the long-run first quarter average. Driving this performance were the UK and Germany, where volumes were up by 10% and 13% respectively. Activity in the UK is normalising as investors continue to shrug off concerns around Brexit and seek exposure to the London market, while robust economic and employment growth in Germany has attracted domestic and cross-border investors alike.
Following a record-breaking performance in the fourth quarter of 2017, Asia Pacific broke yet another record to kick off 2018 with investment activity 22% higher than the previous first quarter record set in 2008. Healthy demand across many of the region’s biggest markets continues to underpin growth with volumes up strongly in Japan, Hong Kong, Australia and China.
Recent investment transactions
While fundamentals remain robust in key global markets, we expect global investment in commercial real estate to soften by 5%-10% in 2018 to around US$650 billion as we continue to see investors pursuing real estate through new avenues outside of traditional single-asset acquisitions. The growing prominence of debt financing, M&A activity and alternative sectors all demonstrate that while the way investors access the sector may be shifting, their appetite for real estate has not diminished.
Income growth continues to underpin capital appreciation, which grew by 6.7% from the previous year for prime office assets across 30 major office markets. Capital value growth has been strongest in Europe, led by Brussels and Amsterdam, while Milan, Stockholm and Berlin have also registered exceptional performances.
Capital growth for prime office assets in 2018 is expected to slow to around 4% for the full year, as rental growth moderates and yields flatten.
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