GLOBAL INVESTMENT OUTLOOK 2016
In spite of an increasingly challenging global environment, global direct real estate investment continues to grow, signifying the appeal of property as an asset class.
What direction will commercial real estate investment take in 2016? This is the question we ask ourselves at the start of the year while looking back at some of the major trends that shaped the global real estate investment landscape in 2015.
While it seems that the underlying trends of 2014 have continued throughout last year – namely the focus of the bulk of capital on global gateway cities and safe haven markets – nevertheless some interesting developments have emerged in 2015 which will determine the direction of global capital flows in 2016.
But before we investigate last year’s trends and present this year’s forecast is more detail, let’s take a look at the overall global macroeconomic picture which prevails at the start of 2016.
GLOBAL MACROECONOMIC PICTURE
According to British asset management company Schroders’ macro and markets outlook – what to expect in 2016, we’re now seeing decent recovery in GDP in mature markets such as the U.S. and Europe. In Europe, Germany is doing particularly well and Spain is recovering nicely while France on the other hand is still struggling slightly. Yet overall, there is solid growth in the advanced world.
Emerging markets on the other hand however have been struggling generally, says the Schroders analysis. China is going through a slowdown while Brazil and Russia are in a recession. India however is doing reasonably well and is expected to continue to do so throughout 2016.
Schroders’ analysts say that one reason for the slowdown in emerging markets has been the strength of the U.S. dollar which is causing a lack of liquidity in emerging markets and reducing the amounts in investment there. A second factor is the reduced demand from global trade – there hasn’t been much demand from the developed world for emerging markets exports.
“Global trade is now at its weakest point since 2010 and actually contracting year-on-year. The developed world is not helping the emerging markets as it used to which is a major concern. The question is whether how much demand in the developed world will need to increase to get emerging markets growing again, or, do emerging markets just need to go through a phase of ‘creative destruction’ to fix their cyclical positions?” asks Azad Zangana, Senior European Economist and Strategist at Schroders.
Global economic growth is expected to accelerate ever so slightly in 2016; growth is expected be sub 3% in the U.S. and around 1.5% for the Eurozone.
GLOBAL CAPITAL MAGNETS
According to Dr Richard Barkham, CBRE Global Chief Economist, the top 10 markets for global capital in 2015 were London, New York, Paris, Sydney, Hong Kong, Washington, Milan, Hawaii, Frankfurt and Munich. “This is a little different from the top markets in the long term namely: London, New York, Tokyo, Los Angeles, Paris, San Francisco, Washington, Chicago, Hong Kong and Boston,” Barkham says.
Bruno Berretta, Senior Research Analyst, EMEA, Colliers International, agrees that the preferred destinations for global capital in 2015 have been global gateway cities and the larger, most liquid and transparent global property markets. He argues that these offer investors stable secure incomes and large lot sizes sought after by investors with large sums of capital to deploy, such as sovereign wealth funds.
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