By Mark E. Rose
(Toronto)
Capital
continues to flow into global commercial real estate markets, inhibited only by
the scarcity of available product for sale. Yields on commercial real estate
are still attractive when compared with alternative investments; however,
limited supply and cap-rate compression are leading some investors to seek
opportunities outside their traditional parameters.
These are some
of the key trends noted in Avison Young’s Fall 2018 North America and
Europe Commercial Real Estate Investment Review:
https://avisonyoung.uberflip.com/i/1034498-ayfall18namericaeuropeinvestmentreviewoct3-18final The report covers commercial real estate investment
conditions in 59 markets in six countries on two continents.
Public and
private capital continue to target commercial real estate assets around the
globe, pushing asset values higher and making it more difficult for investors
to find rewarding opportunities – leading to more joint-venture, value-add and
redevelopment opportunities. Investment capital flowing into the sector is
buoyed by sound property leasing fundamentals with good demand; and with
some exceptions, supply is still relatively constrained.”
With prime
assets delivering slim returns, there’s a real quest for consistent growth
across countries and asset types. All of these dynamics are occurring against a
backdrop of ongoing geopolitical concerns, including the negotiations leading
up to the new trade agreement between the U.S., Mexico and Canada, trade-war
tensions in Asia-Pacific and Brexit in the U.K., not to mention the prospect of
higher long-term interest rates and the impact on asset pricing – all of which
continue to weigh on the minds of investors.
According to the
report, even while the U.S. was in the process of negotiating a new trade agreement
with Mexico and Canada, cross-border investment into the commercial real estate
sector continued to flow, especially from Canada to the U.S. Mexico’s stable
and healthy macroeconomic fundamentals have made the country a well-regarded
destination for global investment capital and one of the most open economies
for international trade and investment.
Across the
Atlantic, London’s commercial real estate market has continued to show
remarkable resilience in the face of stiff headwinds – enduring significant
political and economic uncertainty caused by the EU referendum result, the
shock result of the snap U.K. election and growing tensions between the U.S.
and China, which have raised fears of a trade war that could have global
economic impacts.
Across Germany’s
five major markets, office assets once again attracted the most capital as
already tight capitalization rates continued to compress. Frankfurt posted the
country’s largest single transaction of the first half, while in Berlin,
alternative asset types gained popularity with investors. In Romania, the
capital city of Bucharest remains in top position with positive fundamentals
and improving liquidity, and still offers favourable returns compared with
other countries in the region.
While concerns
over rising interest rates and their impact on values remain, we don’t expect
to see a material decline in investor appetite during the second half of 2018.
(Mark E. Rose is
Chair and CEO of Avison Young)
