C&W: $435B in New Capital Targets Commercial Real Estate
New capital available for global real estate investment stands at $435 billion–down slightly from last year’s peak but the second-highest figure since 2009, reported Cushman & Wakefield, New York.
The company’s Great Wall of Money report tracks newly raised debt and equity capital globally that targets real estate. The total global ‘wall of money’ fell 2 percent year-over-year, the first drop since 2011. “However, current levels are the second-highest on record, reflecting the extraordinary rise in capital targeting the sector this cycle,” the report said.
Debt and equity capital targeting the Americas grew 2 percent year-over-year to $173 billion, C&W said. And for the first time, more equity is available across the Americas–$79 billion–than in the Europe-Middle East-Africa region–$72 billion. “The wall of capital targeting the U.S. has been building steadily as institutional investors have bumped up their allocations to the highest levels in history and offshore investors swarm to park money in high-quality U.S. assets,” the report said.
Capital targeting the Europe-Middle East-Africa region shrunk 9 percent in U.S. dollar terms to $130 billion and Asia posted a marginal increase to $132 billion.
“With the great wall of money targeting real estate at near-record levels, investors need to remain focused but agile,” said Cushman & Wakefield Head of EMEA Research and Insight Elisabeth Troni. “We expect 2017 to be marked by ongoing competition to place capital and source attractive opportunities.”
Troni noted that while core real estate strategies remain highly attractive, demand tends to outstrip supply in many key markets, which pushes down yields. “[So,] unable to find enough existing core assets, investors are engaging in ‘build to core’ strategies targeting development or redevelopment projects that create core assets in top markets. In addition to new investment strategies, we expect new sources of capital to be unlocked around the world with countries such as China, Malaysia, Taiwan and South Africa.”
Investors increasingly concentrate on single country strategies rather than deploying capital across multiple borders, the report said–single-country investments now represent 61 percent of available capital, up 55 percent over the last three years.
Cushman & Wakefield also predicted that the U.S. will remain the most targeted investment market. “Although investment activity slowed during 2016, the great wall of money targeting the market remains high, with many investors still under-allocated to the sector with regards to investment intentions,” the report said.
China will likely remain the second-most targeted country, with a majority of capital coming from Chinese domestic funds, the report said: “There are a number of overseas funds seeking a foothold in China as rapid economic development provides a growing investment base, including a number of U.S.-domiciled funds.”
The U.K. ranked as the third most attractive market, but less capital could target the U.K. as some investors take a “wait-and-see” approach to investment due to ongoing Brexit negotiations, Cushman & Wakefield said.
