CBRE said the lower volumes reflected a global trend of weakening confidence. However, on a longer terms basis activity was robust, and investors continued to express preference for alternative sectors of the market.
Dominic Smith, Senior Director, Research at CBRE, explains:
“The wider investment market presents a contradictory picture, at first glance. On the one hand, global equity markets are close to record highs; on the other, so are the ‘fear indices’ – government bond yields are extremely low, and gold is extremely high.
“Investors apparently believe the global economy is treading a very fine line between moderate growth underpinned by low interest rates, and recession – with near term risk probably skewed to the downside. As we consider the trends in real estate investment in the first half of 2019, it will be useful to bear this mood in mind.”
At the extreme end of falls was the UK, with a decline in volumes of -35%, suggesting that in addition to the global factors inducing the widespread decline in investment, local factors – specifically the ongoing delay to Brexit – were also at play in giving investors pause. Having said this, in many cases 2018 represents a record level of investment that it might be unrealistic to benchmark against.
The general picture is of markets failing to hit last year’s comparable but out-performing the longer-term benchmark – indeed, it was only London that was significantly short of the 14-year median in H1. Arguably, this shows that demand for real estate remains robust.
Furthermore, the relative change in investment across sectors varied markedly. Most troubled was the retail market, where volumes in H1 2019 were roughly €16 billion, a fall of over -40% on H1 2018, according to CBRE data. Residential too saw a significant decline of -27% to around €20 billion.
CBRE added that declines in office and industrial investment volumes were more modest, at -12% and -15% respectively, while investors showed relative preference for hotels and alternatives; hotel investment was actually up 2% year on year, while the decline in alternatives was a modest -6%.
CBRE’s H1 2019 European market analysis continues all week.