Research firm Real Capital Analytics’ CPPI Global Cities Composite Index increased 4.7% year on year in the first quarter, putting it back to where it was in Q4 2019, just before the pandemic.
The composite Index has reached a record level and is 45% higher than the average seen since 2006.
RCA said that the figure would have been worse without the “extraordinary” levels of government support which has helped to lessen the impact of pandemic. RCA referred too to IMF estimates that calculate that the decline in global economic output would have been three times its actual size had it not been for governments’ support.
However, RCA said in its Global Cities publication that investors are now wondering whether the medicine itself is more problematic in terms of inflation. “The pandemic has decreased buyer appetite for risk,” said RCA. The report adds that assets that are selling tend to be better quality which was not the case in the GFC which was one reason that at the time, prices fell heavily in some markets.
European index showed biggest gain in Q1
The RCA Commercial Property Price Indices are transaction-based and accurately measure commercial real estate price movements. Of the 18 cities that make up the index only three posted year on year declines, Hong Kong, San Francisco and Sydney. The European cities composite index saw the highest gain of the quarter, 7.2% annually, mainly because of strong gains in Paris and the top German cities.
The report points out that European office investment did slow during 2020and sank in Q1 2021, “but prices have remained solid across the core markets,” it adds.
“The weight of capital looking for yield in the region has kept prices from collapsing despite the difficulties in transacting early on in the pandemic.”