In 2018, global real estate investment was far stronger than many had anticipated. In fact, we expect volumes to breach $900bn as news of the final few deals trickles in, making last year the second most active in a decade.
Additionally, it is telling that fully one third of 2018’s global investment by volume took place across borders, up from 25% a decade ago. This is an asset class that is slowly but surely becoming ever more international.
So what of the outlook for 2019? The first point to make is that the weight of capital targeting real estate globally will continue to build. Despite amassing record volumes of unspent commitments, private equity funds are on the hunt for more, and the evidence proves they are having little difficulty in raising it.
A sizeable share of private equity fund capital still emanates from the US, but increasingly it is being directed to European assets. The challenge for funds is to identify opportunities that can deliver the strong performance their investors have become accustomed to. To do so requires a greater focus on assets further up the risk curve, such as those in second or even third-tier cities, specialist sectors, or simply those where strong rental growth assumptions can be substantiated.
Not all investors will choose to access the market directly. We have already seen a significant rise in debt fund capital as non-bank lenders investors seek a defensive exposure to the asset class. Meanwhile, amongst the banks themselves we’ve even seen the tentative revival of the commercial mortgage backed securities market in Europe.
Ultimately, 2019 will be a year in which the evolving macro picture will require close scrutiny, but that should not be allowed to cloud sentiment unduly - the foundations of another very active year remain in place.
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