World in motion: The 2017 global forecast
Total Property - Issue 7 2016
Global uncertainty - from war and banking scandals to Brexit and the rise of the populist right - will continue to affect investors in 2017 but demand for good quality real estate will remain high.
Global property investment rose 0.5 percent this year but volumes for income producing assets fell and the market has clearly paused for breath.
Indeed, with the scale of change underway, from war in Syria to Brexit in Europe, many investors are now struggling to decide what comes next and where they should look for value.
While 2016 started with fear over a hard landing in China, Europe and the UK have taken over as a bigger cause of uncertainty. Nonetheless, in such a volatile environment, more investors are turning to the stable cash flow and inflation-hedging merits of real estate, particularly given that the fundamentals of the market on the occupier side are generally holding up well.
The globalisation of the market in 2017 will continue, with cross border capital gaining market share and more investment also going direct into local platforms. The top five global investors this year have been the USA, China, Singapore, Canada and Qatar. Other key groups include South Korea, Hong Kong, the UAE and Germany.
Targets for foreign investment have shifted somewhat, with cross border flows growing faster in the Americas and Asia than Europe. The most notable shift has been London losing its global crown to New York. But a range of other gateway markets are also down, such as Tokyo, Washington and Frankfurt, due to a combination of limited supply and local competition.
Looking ahead, markets are stabilising but risks are still evident and change, if anything, is accelerating thanks to a combination of new technology as well as environmental, social and demographic pressure. As a result, occupier requirements will continue to evolve.
While global uncertainty will continue to affect investors, corporate confidence has held up well and allied to the changes in demand being wrought by new technology, living and working practices, this underpins a robust medium-term outlook for good quality real estate.
Indeed, the role of real estate in portfolio diversification is underpinned by sustained low interest rates, expectations of higher inflation and volatility in all asset classes.
What is more, with changes to society and business only accelerating, the importance of the right property is increasing – suggesting profit potential will be enhanced for the best, even as it falls for weaker property.
As a result, a focus on core markets should be maintained, where the fundamentals are right across a range of variables and the city can adapt and appeal to different users and sustain a vibrant, growing economy.
Office market growth will be subdued by slower corporate investment in many regions but supported by supply dynamics, notably in core markets. CBD markets are still favoured, mirroring demand trends among corporate occupiers.
Trends are more favourable for retail than office property in many areas of the US and Europe. Key centres in Asia are also more buoyant as foreign demand and interest in new flagship stores drives interest, particularly in tourist-linked cities.
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