Americas expected to lead global property investment market recovery
Analysts expect a 20% increase in global property investment markets in the second half of 2012 led by the Americas and driven by increased confidence and a release of pent up investor and tenant demand.
A return to better economic growth will be the key to the strength of the recovery, according to Cushman & Wakefield’s latest research report, the International Investment Atlas 2012.
‘We are witnessing increased risk tolerance in the securities and real estate markets. As the economic news firms, particularly in the sovereign debt and banking markets, these trends are expected to accelerate in the second half of the year,’ said Glenn Rufrano, global president and chief executive officer of Cushman & Wakefield.
Cushman & Wakefield anticipate volumes for the year to be little changed overall on 2011, at US$710 to 720 billion but within this total, a potential 20% increase between the first and second halves of the year is expected, with activity picking up due to stronger demand as well as increased investment supply resulting from bank loan sales and recapitalizations.
According to Greg Vorwaller, head of global Capital Markets at Cushman & Wakefield, sustained job growth will be a vital boost. ‘A rally in sentiment should be enough to trigger a steady release of pent up occupier demand for effective, modern space as stalled business plans are put back into action, helping investment, banking and development markets,’ he explained.
‘However even if confidence stays low or a new crisis emerges, property is still going to remain high on the agenda even as tenant demand falls for investors as they look for secure incomes and for occupiers as they look to cut costs and utilise their asset base to its fullest extent,’ he added.
David Hutchings, head of European research at Cushman & Wakefield, believes that London will continue to stand out due to the sheer depth of its market as well as the long term growth it offers.
Investors are also set to look more widely for opportunities this year, some taking on more risk, other re-evaluating what risks they are ready to face. In fact a new hierarchy of targets is starting to emerge as investors look beyond the region or country that a market lies in to better understand its true risks and growth potential.
Vorwaller said that the Americas look likely to see the fastest growth in investment activity again this year, focussed on the US. ‘However for those willing to look behind the headlines, Mexico presents some compelling opportunities in prime retail, office and industrial for premium risk adjusted yields. The industrial sector in particular should benefit from the on-shoring and near-shoring of manufacturing,’ he explained.
‘Brazil remains a place where truly global investors must take a position given the relative growth of the economy and absolute growth of its middle class. Industrial and retail continue to offer attractive opportunities for those seeking stable growth with capital appreciation in mind, providing tax and currency risks are accounted for,’ he added.
In the US, beyond prime assets in prime markets, investors should begin to focus on prime assets in secondary cities that have historically performed well on a supply/demand basis through economic cycles, according to the firm.
Strong interest is expected to continue in emerging markets. Last year Asia saw a 42% increase in industrial investment and a 26% rise for retail, with no significant change for offices or hotels. These trends will continue in 2012 with a focus on Japan, Hong Kong and Singapore for industrial, mainly in logistics, according to Cushman & Wakefield.
‘While we expect the first half of 2012 to continue last year's trend of a move back to core product in gateway markets, from mid year on we anticipate an increase in activity in the emerging markets,’ said John Stinson, head of Asia Pacific Capital Markets, Cushman & Wakefield.
‘Strong local conditions, unprecedented numbers of opportunities and favourable investor sentiment will see more international capital deployed in India for example, initially in residential and then in office products in Bangalore and around NCR. In China, the global investor community is now differentiating and seeing markets within markets, with the key cities of Shanghai and Beijing being the pick for office exposure. Strong turnover will continue to drive excellent fundamentals for investment in mid to high end retail malls in either high street Tier 1 locations or strong Tier 2 cities such as Chengdu,’ he added.
In Europe, the Middle East and Africa there is a broad choice for investors, according to Michael Rhydderch, head of EMEA Capital Markets, Cushman & Wakefield. ‘In Europe, low risk investors will continue to have a wider choice of markets than they realise with the focus on Germany and the Nordics, particularly for retail. France and the UK are perhaps a little riskier now with slower economic growth and more recent property price appreciation but they offer good medium term growth and higher return potential in development and refurbishment in London and Paris,’ he explained.
‘Elsewhere, Poland is an easy pick to make but a crowded market to buy in and one that really has to be seen as more core than value add these days. Indeed, for those seeking higher returns, they will need to look towards the fringe with Russia a very exciting market at present and Turkey set to perform well, or towards what are currently less favoured segments of the market,’ he pointed out.
‘In particular investors need to look at where distress is likely to emerge but can be married with attractive long term fundamentals be that from repositioning retail space in a range of markets, from an undersupply of modern retail or offices in some Italian cities or a shortage of modern logistics to rent in Spain and Portugal,’ he added.