Global commercial real estate (CRE) investment, including entity-level deals, totaled $231 billion in in the second quarter, up by 17 percent from the previous quarter but down by 7.5 percent from Q2 2018.
The Americas, EMEA and APAC markets all reported a rebound in investment from Q1 but a drop in H1 activity from the same period last year, in part due to fewer ultra-large transactions and a lack of quality assets for sale.
CBRE reported that strong leasing activity underpinned renewed investor demand for office assets a levlling off in the industrial and hotel sector and a flurry in the multifamily sector, the most active U.S. market.
“The Americas, EMEA and APAC markets all reported a rebound in commercial real estate investment from the first quarter but a drop in H1 activity from the same period last year, in part due to fewer ultra-large transactions and a lack of quality assets for sale,” said CBRE’s Global Chief Economist, Richard Barkham.
“With some slight improvement in the U.S. economy and central banks cutting interest rates, prospects for the remainder of the year are good. A continued buoyant U.S. market, coupled with restored fiscal expansion and monetary easing around the world, potentially supports a stronger second half of global investment activity.”
Global CRE investment volume increased from Q1 across all regions but overall fell by 7.5 percent year-over-year in Q2 2019, including entity-level deals. Only the Americas region reported year-over-year growth (0.7 percent). Activity was down from last year by 17 percent in EMEA and 14 percent in APAC.
Global investment volume totaled $428 billion in H1 2019, down by 10.6 percent from H1 2018. Nevertheless, with some slight improvement in the U.S. economy and central banks cutting interest rates, prospects for the second half of the year are good.
According to CBRE, resurgent office investment in gateway markets drove Q2 rebound. Berlin, Tokyo, Boston and San Francisco all had more than 50 percent year-over-year growth in the value of transactions.
While most property sectors had fewer large-ticket transactions, deals exceeding $100 million dominated the office sector. This likely is because occupier demand for high-quality office space remains high due to healthy employment growth.
With the global economy in the 11th year of what is officially the longest cycle on record, investors want stable trophy assets to secure cash flows and for potential downturn protection.
The Americas was the only global region with year-over-year investment volume growth (+0.7 percent to $128 billion) in Q2. Americas’ transaction volume totaled $235 billion in H1, down five percent from H1 2018.
The U.S. accounted for 53 percent of global CRE investment year-to-date with high growth in multifamily and office investments, which made up 67 percentof total U.S. transactions in Q2.
Entity-level transactions cooled, particularly in the industrial and retail sectors due to weaker economic sentiment. The year-over-year growth of U.S. transactions was 3.4 percent including entity-level transactions and 7.7% excluding entity-level transactions.
As hedging costs trended down for U.S.-dollar-denominated assets, there was an uptick of cross-border investment in the U.S., driven by investors from Canada, Israel, Germany and U.A.E. Mexico and Brazil also benefited from cross-border interest from U.S. and French investors.
Investment activity is improving in parts of Europe, notably in the office and residential sectors. However, the lack of quality product on the market is a constraint and uncertainty over the EU’s rent control policies remains, which may dampen investor interest in the residential sector.
CBRE’s outlook for 2019 global CRE investment is for a single-digit percentage point drop from 2018’s record. Compared with the same period last year, H1 2019 volume was down by 10.6 percent.
A continued buoyant U.S. market, coupled with restored fiscal expansion and monetary easing around the world, potentially supports a stronger second half of investment activity.