MIPIM: Annual global transaction volumes to hit $2.5 trillion by 2020, predicts Colliers

Annual investment in global real estate could reach $2.5 trillion by 2020, Colliers International forecasts, as existing investors increase allocations and new sources of capital continue to emerge.

Cushman & Wakefield recorded global transaction volumes at $1.75 trillion in 2018, broadly in line with Colliers data, and predicted similar levels again in 2019.

This optimistic outlook for 2019 global volumes is driven by delayed central banks moves to increase interest rates which delay’s the sector’s “days of reckoning” when rate rises erode the relative-value of real estate as an investment among multi-asset class investors.

However, Colliers’ view for 2019 global volumes is much lower – at just below $1 trillion – but this then soars to a whisker below $2.5 trillion in 2020.

Highlights from Colliers’ data released this week:

  • Allocations to global real estate by global institutions reached at least $840bn in 2018;
  • There is an existing $370bn in closed-end funds waiting to be deployed to global real estate in 2019;
  • Investment in UK commercial real estate in the first two months of 2019 reached £5bn, an 84% year-on-year fall compared to the £9.2bn recorded in the same period last year;
  • Global real estate assets under management (AUM) have doubled over the latter half of the investment cycle from 2014 – from $1.6 to $3 trillion by the top 100 global fund managers;
  • top 10 global fund managers AUM growth has slowed over the five-year period, suggesting increased capital diversity; and
  • top three global real estate investment strategies among 298 fundraisings last year were opportunistic($135bn), value-add ($83bn) and debt ($6bn).

Richard Divall, EMEA head of cross-border Capital Markets, Colliers International, explains:

“Despite economic growth cooling and a subsequent slowdown in investment activity, global real estate assets under management continue to rise and real estate allocations are up.

“New sources of global capital continue to emerge despite consolidation amongst the larger real estate fund managers. The source of active global capital remains in the hands of institutions and private equity, but there are signs of a shift in spending power over the next five years as family offices, sovereign wealth funds and foundations increase their interest in the sector.”

Europe has been a direct beneficiary of the increase in global capital diversification. Asian capital accounts for 30% of cross border investment –from Korean, Singaporean and Hong Kong based investors, while interest from Japan and Australia continues to rise. Colliers expects positive foreign exchange conditions and the hedging benefits of buying in Europe will continue to attract Asian capital.

For US capital, five out of the top six destinations are in Europe: Spain, UK, France, Germany and the Netherlands most notably in the city metros of Madrid, London, Paris and Amsterdam, Colliers data shows.

Damian Harrington, head of EMEA research, Colliers International, explains:

“London really stands out as a truly global city with around 70% of investment generated outside of UK borders encompassing an increasingly balanced source of capital from the Americas, Asia and Europe.

“Within Europe, the major German cities of Berlin, Munich and Frankfurt alongside Stockholm form the European contingent of the next big group of global cities witnessing between $50-100bn in investment activity since 2008, with Madrid and Amsterdam picking up momentum.”

james.wallace@realassetmedia.com