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Banking and Finance Deals & Dealmakers

Dearth of big deals flattens investment volume

Global Commercial Real Estate Investment (US$ Billions – Fixed FX)
Source: CBRE Research, RCA (Americas), Q3 2019.

Global commercial real estate (CRE) investment, including entity-level deals, totaled $260 billion in Q3 2019, up by seven percent over the previous quarter but down by two percent from Q3 2018.

Seasonally adjusted third quarter investment volume matched that of the previous quarter but was down by eight percent year-over-year.

Latest numbers from CBRE show U.S. investment volume was slightly down year-over-year in Q3 but is up mildly year-to-date after adjusting for seasonality, entity-level transactions and Blackstone’s acquisition of GLP’s US logistics portfolio.

APAC had a nice rebound in investment activity, while uncertainties around Brexit continued to dampen investor sentiment in EMEA.

Nevertheless, investment volume improved from the weak first half of 2019 in EMEA, led by robust activity in France, Sweden and Germany.

Richard Barkham, CBRE’s Global Chief Economist & Head of Americas Research, commented, “CBRE’s full-year outlook for global commercial real estate investment is for a single-digit percentage point decline from 2018’s record level.

“Despite uncertainties over Brexit and multiple trade disputes, a major downturn has been kept at bay by lower interest rates, tight labor markets and confident consumers. The trend of fewer mega-deals will likely continue into 2020 until business sentiment picks up.”

Paris replaced London as the No.1 destination for foreign capital worldwide for the first time on record. The percentage of cross-border investment hit a six-year low globally in Q3.

Recent interest rate cuts have widened yield spreads, which has revived investor interest.

Global CRE investment volume year-to-date was down by five from the same period last year. On a regional level, APAC reported an impressive 49 percent year-over-year increase in Q3 that offset the sluggishness in H1 and lifted year-to-date growth to six percent.

The Americas and EMEA recorded a relatively soft third quarter due to political uncertainty, low yields and some recession fears.

Seasonal adjustment paints a slightly weaker picture as third quarters have traditionally been strong. Seasonally adjusted global volume matched that of the previous quarter but fell by eight percent year-over-year in Q3 2019.

The limited supply of high-quality assets for sale continued to restrain capital deployment, while fewer ultra-large transactions amplified the year-over-year declines.

Seasonally adjusted Americas investment volume decreased by 17 percent year-over-year and three year-to-date, mainly driven by lower volumes in Canada and the U.S.

Accounting for more than half of global activity, U.S. investment volume (seasonally adjusted) fell by seven year-over-year and one percent year-to-date.

But if just a single transaction were excluded — Blackstone’s $18.7 billion acquisition of GLP’s U.S. industrial portfolio — the U.S. would have registered only a two percent decline year-over-year and a three percent increase year-to-date (seasonally adjusted).

Decreased U.S. investment volume was almost entirely due to fewer entity-level transactions in Q3 2019. Excluding entity-level deals, U.S. investment volume increased by 14 percent year-over-year and eight year-to-date after seasonal adjustment.

The percentage of cross-border investment hit a six-year low globally in Q3. This was a result of fewer ultra-large transactions and an absence of big-ticket retail REIT acquisitions.

While the valuation of retail REITs has partially recovered and made them more expensive, Asian investors who have been big cross-border players turned to more domestic and intra-regional investment, in addition to capital controls in China.

The downturn was especially evident in the U.S., where cross-border investment has fallen by 57 percent year-to-date compared with the same period last year.

The sharp decrease in entity-level transactions contributed to 75 percent of the decline, while less inbound investment from Singapore, Japan, China and Hong Kong contributed another 15 percent.

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