Results of the year: where to invest in real estate?
The volume of transactions in 2018 increased by 5%, but in 2019 it will return to the level of 2017
The volume of transactions with commercial real estate concluded in 2017 amounted to 698 billion dollars. According to JLL, the amount of investments 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, it should have reached 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.
In recent years, the number of cross-border transactions in the global real estate market has been actively growing again: their share in the total volume of investments increased from 25% in 2009–2011 to 32% in 2017.
The movement is moving in both directions: investors from emerging markets invest in developed and vice versa, but the former are more than the latter. We predict a further increase in the share of cross-border transactions, as the world is globalizing and getting closer, and local risks are pushing people to invest in other regions in order to diversify
Georgy Kachmazov, Managing Partner of Tranio: “We believe that the growth of interest rates in Europe will be slow, because in case of too rapid growth there will be high risks of bankruptcy of the economically weaker European countries. Nevertheless, we understand that the risks of correction are high, so we recommend investors to invest in value-added projects with potentially high returns of 20%, a short implementation horizon (about two years) and low risks of capital loss.
Investors from the APR in 2017 for the first time became world leaders, but in 2018 China tightened control over the movement of capital
The amount of transactions with foreign real estate concluded by investors from the Asia-Pacific region in 2017 for the first time exceeded the figures for North America and Europe: $ 90 billion against $ 83 and $ 81 billion, respectively, Knight Frank calculated.
The main investment donor of the APR is China. The volume of Chinese investment in overseas property in 2017 increased by 8% year on year and amounted to $ 35.5 billion. According to PwC, the flow of investment from China to the United States has decreased by one and a half. But this recession was balanced by investments in the UK: the amount of transactions with British real estate has tripled.
However, statistics show that in the first half of 2018, Chinese investors dropped sharply to $ 5.3 billion from $ 25.6 billion in the same period in 2017. Experts attribute this to the tightening of control over the movement of capital from the country.
I suspect that tightening control is unlikely to lead to a real decrease in investor activity. Rather, it increases transaction costs, as the withdrawal solutions offered by providers camouflage the movement of capital for official statistics. In practice, we see an increase in the activity of Chinese buyers everywhere, so in December 2018, we launched the Tranio website in Chinese
The United States remains the largest volume of transactions in the commercial real estate market in the world despite fluctuations in dynamics in recent years. So, in 2017, the total amount of transactions amounted to 376 billion dollars – 8% less than in 2016. However, in the first three quarters of 2018, the volume of investment in US real estate increased again by 14% to $ 341 billion. The total volume of transactions for 2018, according to JLL, should have increased on an annualized basis by 10%. The sharp decline in investment from China was reflected primarily in the markets of New York (the total amount of transactions decreased by 54%) and San Francisco (a decrease of 52%) – these cities account for two thirds of all Chinese investments in US real estate.
Investment in major commercial real estate markets
UK shows growth despite Brexit
The UK is the most active European real estate market, which in 2017 attracted about $ 79 billion – a 37% increase from a year earlier. The largest foreign buyers were investors from the APR, who spent on it in 2017 19.8 billion dollars. JLL analysts point out that investors from Hong Kong and mainland China are particularly active in the office sector in London. In the beginning of 2018, JLL predicted a slight decline in investor activity in the UK market: they estimated that the total amount of transactions for 2018 should have been about $ 78 billion.
Time will tell how Brexit will affect the UK. We believe that the British economy is reliable enough. Our investors in the UK are interested in building low-cost housing and micro-apartments, as well as projects with a large margin of safety in terms of their sensitivity to potential price correction.