Volumes are set to rise 10-15%, back above US$1 trillion for the first time since 2007

Cushman & Wakefield’s latest capital markets research predicts that the global property investment market is picking up momentum. Volumes are set to rise 10-15% in 2014 to back above US$1 trillion for the first time since 2007. This comes after an estimated 8.4% increase delivered 2013 investment sales of US$978bn.

According to David Hutchings, Head of EMEA Research at Cushman & Wakefield: “The growing level of optimism and activity we are seeing in most regions has its roots in a belief that the global economy is set for calmer waters ahead and that financial imbalances are on the mend. This is leading to an increase in risk appetites which is manifest in a push to invest across borders, a move towards second tier assets and a narrowing in the prime to secondary yield gap.“

The speed with which sentiment has turned is surprising many and leading some to question whether investment markets are getting too far ahead of the occupational cycle. Some in fact believe a liquidity driven bubble is building up in some areas which will burst when the Federal Reserve and others start to rein in quantitative easing.  However, while there are ongoing downside risks and the recovery is very much multi-speed, tapering should be co-incident with better economic and corporate confidence — and hence should be accompanied by better occupational demand and growing property incomes.

Overall, Hutchings suggests: “With bond yields already increased, the main impact of an end to QE will be felt in emerging markets as liquidity drops. However it should also be taken as a reminder that investors need to stay focused on fundamental real estate drivers. In particular the mismatch between supply and demand must be understood, and this is both in terms of quantity and quality given the changes underway in what occupiers actually want.”

Volumes have risen most rapidly in the Americas but EMEA and Asia are both expected to pick up next year, with foreign players a key part of this. Cross border activity is already growing in all areas, to above 12% in the Americas and Asia for example, but standing at over 40% in EMEA and likely to rise further.

Polarizing markets in Asia Pacific

In Asia Pacific, a 5-7% increase in trading activity is forecast for next year after a modest rise of 1-2% in 2013, with growth tracking that of the economy and delivering slower but also less volatile performance than in recent years. Within the region however trends are going to be heavily polarized according to John Stinson, Head of Capital Markets in Asia Pacific for Cushman & Wakefield, “Investors in core markets are accepting that lower returns are the new normal but they are also looking forward to more stability and hence are happy to invest in core assets for the long term. Those with shorter term or higher return horizon however are ready to make sales in the core to redeploy their capital to higher growth sectors and geographies. Emerging Asian markets are therefore likely to be busier next year with Manila, Jakarta and Bengaluru offering great potential according to our research.”

At the same time, Asia will continue to export capital at an accelerating rate both within the region and around the world with emerging markets favoured in Asia but core product in core markets top of the agenda in other global regions for now. According to Stinson, “The impact of Asian players on the global stage is set to grow exponentially, with China and Japan both increasing their overseas spending and second and third tiers of institutional and private capital also set to flow faster from areas such as China, South Korea, Malaysia and Singapore.”