Cross-border commercial real estate transactions: how is the global market changing?
Although North America remains the largest volume of transactions in the commercial real estate market, only 15% of their number is with foreign investors. At the same time, in Europe, cross-border purchases account for more than half of transactions. The role of Asia in the global market is growing rapidly: both as a source of capital and as a real estate market for investment. According to experts, the share of cross-border transactions in the Asia-Pacific region in the near future will be equal to this indicator in Europe. Tranio analysts have figured out which countries have invested in overseas property more than others, and which have become leaders in attracting foreign capital.
General market condition
According to estimates of the International Monetary Fund (IMF), the growth rate of world GDP in 2017 was 3.7%. The results of the year exceeded the last four years, more than half of the growth of the global economy was provided by the Asian region. As the IMF predicts, the growth rate of the global economy in 2018–2019 will remain at last year’s level, primarily due to the trade confrontation between the two largest world economies: China and the United States.
Nevertheless, the volume of closed transactions in the global commercial real estate market in 2017 remained at the level of 2016 and amounted to 873 billion dollars, according to the American consulting company Real Capital Analytics (RCA). This is the second largest result in the last ten years. The data of the annual Active Capital: The 2018 Report study by Knight Frank show that the number of cross-border transactions in the world real estate market has again increased rapidly in recent years: their share in total investments increased from 25% in 2009–2011 to 32% in 2017
According to another American consulting company JLL, the volume of real estate transactions concluded in 2017 amounted to 698 billion dollars. According to her estimates, the amount of investment in the global real estate market in the first three quarters of 2018 increased year-on-year by 7% to 507 billion and the total amount for the year, according to preliminary estimates, will reach 730 billion dollars. However, in 2019, experts predict a slight decline in investor activity: their investments in real estate will be reduced to 700 billion dollars.
Who is investing?
In 2017, for the first time, the cumulative amount of transactions with foreign commercial real estate concluded by investors from the Asia-Pacific Region (APR) exceeded the volume of cross-border transactions involving investors from North America and Europe. According to Knight Frank, in 2017, investors from the Asia-Pacific region invested about $ 90 billion in overseas income property (excluding facilities under construction), of which 19.8 billion came from the US market and $ 19.6 billion from the British.
If Asia Pacific, Europe and North America are clear leaders in terms of investments in overseas commercial real estate in 2017 ($ 90, $ 83 and $ 81 billion, respectively), investors from the Middle East, Africa and South America spend dozens of times less on it: 9, 4 and 1 billion dollars respectively
If Asia Pacific, Europe and North America are clear leaders in terms of investments in overseas commercial real estate in 2017 ($ 90, $ 83 and $ 81 billion, respectively), investors from the Middle East, Africa and South America spend dozens of times less on it: 9, 4 and 1 billion dollars respectively Randy Tarampi / Unsplash
China is the largest investment donor in the APR. The flow of cross-border capital from China in 2017 increased by 8% compared with 2016 and reached $ 35.5 billion. The volume of Chinese investments in profitable US real estate, according to consulting company PwC, in 2017 decreased by more than one and a half times. However, this decline was balanced by investments in British real estate, the volume of which tripled in 2017 and amounted to 7.3 billion dollars.
At the same time, investment results in the first half of 2018 showed that concerns about a possible reduction in the activity of Chinese investors due to the tightening of control over the movement of capital by the Chinese authorities turned out to be quite justified. According to CBRE, foreign investments by Chinese investors in the first half of 2018 dropped sharply to 5.26 billion dollars – from 25.6 billion in the same period in 2017. According to CBRE estimates, if this dynamic continues in the second half of 2018, the total investment from China will be minimal over the past five years.
Analysts of Knight Frank also noted in 2017 a sharp increase in the volume of investments in foreign real estate investors from Hong Kong and Singapore: by 41% and 35% respectively. This is largely due to limited opportunities for diversification of investments and low liquidity of assets in domestic markets. Most of all in 2017, investors from Hong Kong invested in real estate in the UK (7.1 billion dollars) and China (5.7 billion dollars). Singapore’s investment in the US commercial real estate market in 2017 reached $ 6.6 billion, while $ 3.5 and $ 2.8 billion came from Australia and the United Kingdom.