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Investment markets pick up during the third quarter

Global Market Perspective, November 2019

The third quarter of 2019 saw an uptick in global sales activity as transaction volumes rose by 13% from a year earlier to US$205 billion. This brings activity over the first nine months of 2019 to US$550 billion, 1% better than the same period in 2018.

Returns for private real estate remain stable while public real estate continues to outperform other major asset classes at the global level. With the volume of capital held by funds that is yet to be deployed near all-time highs, investors, though increasingly cautious and selective, remain keen to access the sector. In this environment we expect global investment in commercial real estate to moderate by about 0-5% for the full-year 2019, to roughly US$750 billion. With Asia Pacific continuing to outperform and activity surprising on the upside in the Americas, the global decline will be primarily driven by weakness in EMEA, particularly in the office and retail sectors.

U.S. underpins outperformance in the Americas

Activity in the Americas reversed course in the third quarter of 2019 as volumes jumped by 22% to US$97 billion. This brings an end to the slowdown seen during the first half of the year, with investment over the year to date totalling US$245 billion, 9% higher than the total from the same period in 2018. Driving this increase is the U.S., where investment is up by 9% through the first three quarters of the year. Activity in the region’s next two largest markets also picked up, with Canada and Brazil both seeing sturdy growth. On the other hand, activity in Mexico fell to its lowest level during the current cycle.

Core markets continue to drag on activity in EMEA

Continuing the trend seen during the first half of the year sales activity in EMEA dipped by 1%, to US$66 billion, during the third quarter. Total investment during 2019 now stands at US$176 billion, 13% lower than the same period last year. The region’s two largest markets continue to weigh on regional performance with the UK and Germany seeing double-digit declines.

Asia Pacific maintains its superlative performance

Activity remains elevated in Asia Pacific. The best third quarter on record, Q3 2019 saw year-on-year investment rise by 18% to US$42 billion. Activity over the first three quarters also now stands at its highest level on record, totalling US$128 billion, which is 10% better than the same period last year. Driving this increase is the region’s largest market, China, where volumes have risen by 56% through the first three quarters of the year.

Office capital value growth slowing

Prime office capital value growth slowed slightly during Q3 2019 to an annualised rate of 6.1% (across 30 major office markets), compared to 6.4% in Q2 2019. A further moderation is expected with capital growth forecast to end the year at 4.7%.

Sao Paulo (+20%) and San Francisco (+19.8%) have been the stand-out global performers over the past year and also recorded the fastest growth over the quarter. In Europe, Amsterdam (+18.7%) and Frankfurt (+18.4%) experienced the strongest growth, while Tokyo (+15.0%) also registered double-digit increases.