By Shawna Yang
According to Cushman & Wakefield’s latest International Investment Atlas report, the global property investment market saw a modest 6 percent rise in activity in 2012 with volumes reaching $929 billion.
In what was a difficult year in most markets, investment volumes rallied in the fourth quarter, signaling the beginning of real momentum and a return of confidence in the market which could see volumes this year increase 14 percent to exceed the $1 trillion mark for the first time since 2007.
Activity this year will be led by North America and Asian markets and driven by increased allocations to property by institutions and high net worth individuals and families, plus increased stock coming on to the market.
In 2012, China and the U.S. were two key engines of the strong finish _ the former benefitting from a record high in land right sales and the latter seeing a rush of activity to beat year-end capital gains tax hikes. However, growth was far from limited to these two global heavyweights and a range of other markets in all regions saw a final quarter rally, notably Spain, Poland, Norway, Switzerland, Indonesia, Thailand, India and Australia.
The market to date has remained selective and focused on core products. By region, North America and the developing part of Asia drove the overall global rise, with mature European and Asian markets largely flat and emerging markets in Europe, the Middle East, Africa and South America all down.
In terms of market performance, the Americas saw stronger investment activity, a bigger contraction in yields and more positive rental growth. Asia was more stable with Europe, the Middle East and Africa (EMEA) clearly taking the biggest hit from the market slowdown.
The America’s share of global trading rose to 32 percent in 2012 from 28 percent in 2011 while the EMEA slipped to 21 percent from 24 percent. Asia remained the largest global trading block, accounting for 47 percent of market activity, down from 48 percent in 2011. Interestingly, this remains largely domestically driven.
Among cross-border players, Europe is the biggest target market, attracting 51 percent of capital, up from 45 percent in 2011. By contrast, Asia speaks for 31 percent of cross-border investment and the Americas 18 percent _ down from 20 percent in 2011.
Occupier markets were clearly a lot more cautious last year leading to slower demand and rental falls in some areas.
Overall, low supply has been a key support in all regions and while rents did reverse in some areas later in 2012, overall growth for the year was broadly positive. Retail tended to be the best performing sector and the Americas the best performing region in all sectors, typically led by South America ahead of the U.S. and Canada.
Improved macroeconomic conditions with sustainable growth across the region will boost activity and performance resulting, in a 15 to 20 percent increase in investment activity.
Investment demand will increase as faith grows in China’s soft landing but demand will also broaden and other markets such as Australia and Japan will be an increasing target for overseas investors, while markets such as India and Indonesia are likely to be on the rise.
Long-term trends such as urbanization and an increasing middle class will add to demand to access a range of sectors, including residential, especially in Chinese cities, as well as higher growth markets as Indonesia and Vietnam.
For the Korean market, even with the persistent uncertainty of the global economy, 2012 was an active year in terms of the number of investment transactions, where there was a strong preference for fully-tenanted office buildings in core locations. Low interest rates have led to abundant liquidity in the market, which in turn has strengthened investor demand.
Looking forward to 2013, investors will continue to focus on secure, core office assets. As such, prime yields will be compressed further whereas non-core market figures will remain high. Also, buyers who require extra returns or portfolio diversification will look to increase their exposure to other asset classes, such as retail or industrial. As the local investment market became quite competitive, many Korean institutional investors sought opportunities outside of Korea, primarily in global gateway cities such as London and New York City.
North America will be a favored market in 2013 despite the ongoing political and fiscal uncertainties. Early signs of a recovery in occupational demand together with an improving economy and debt market, low vacancy and high liquidity augers well for investment demand and performance.
As a result, a 15 to 20 percent increase in investment activity is forecast, alongside modest cap rate contraction, led by the best second tier markets, and a steady normalization in occupational markets and hence some rental growth.
European investment activity will likely remain subdued in the short term by the lack of quality products and affordable financing, but the signs are that more stocks released by banks, the public sector and corporate owners should produce greater activity in 2013, generating a possible modest 5 percent increase.
European market trends will continue to diverge with a number of peripheral European markets bouncing along the bottom for some time.
Shawna Yang is director of capital markets, Cushman & Wakefield Korea.