With the current trends in retail, office markets will come to play a greater role in the value of commercial real estate portfolios.
So to get an understanding of how the global property market is performing, it pays to be aware of the risks and prospects for the world’s major markets.
Taking a broad look at the global office markets, we can see Asia and the United States clustered towards the top end of market yields, with Europe pulled down towards the bottom.
But within each market things are afoot.
Savills is pointing to not much happening in the UK this coming year, projecting a potential shortfall in investment of between 5-10% compared to last year.
Brexit can’t be ignored. The potential major break with the European Union could throw a very ig spanner in the works for the UK’s large European investor market. CBRE in their take confirms that “trade access is likely to be worse” and that “substantial political noise and turbulence” will come from Brexit, something we’ve already started to see.
But within that there are still opportunities for the market, particularly as the UK economy continues to grow and with it does the demand for commercial real estate.
Savills tips the office sector, while CBRE suggests industrial and logistics property, especially in urban areas and what they refer to as ‘beds sectors’ (residential, student accommodation, hotels and healthcare). They say these sectors are in demand, or will benefit from a weaker pound.
When it comes to the world’s largest single market for commercial real estate, a stronger dollar will continue to act as a boon to American business.
To show the heat in the market over there, the USA posted its 81st consecutive month of job gains in June with supply shortfalls, according to Savills, being the main constricting factor for the market.
Sales are down 15% from last year and some commentators are pointing to America’s increasing infatuation with online shopping as posing real risks for the shopping mall empires, but the increasingly tight jobs market and economic growth, particularly in several key American cities, will maintain strong demand for office space.
The Australia-New Zealand markets continue to be supported by strong international investment, while major office sales, while down from 2016, are still 50% higher than the 10 year average.
Auckland is the strongest performing city in the region for effective yields at 5.86%, followed by Adelaide in Australia at 5.19%.
That’s despite Sydney and Melbourne being the strongest performing markets for international investor’.
The up and coming destination for global capital investment in commercial real estate and property, Asia, is continuing to come up.
Savills is pointing to strong economic growth expectations as amping up investor activity in the area, but that a shortage of premium property in in-demand areas is pushing them to invest in “secondary locations”.
They also warn of risks, telling investors to “pay attention to the impact of volatile swings in global capital flows and currency movements once the interest rate environment begins to normalize.” This is important to note given the current movements in the US dollar and the ripples it’s sending through the global office market.
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