Global investors are increasingly focused on political instability and slowing economic growth, and their potential impact on commercial real estate demand. But capital remains abundant. What countries, markets and assets are attracting investment, and which surprising mega trends are driving cross-border capital flows?
The appetite for investing in commercial real estate continues to climb as sovereign wealth funds, pension funds, high net worth individuals and other investors seek superior yield. Self-storage, manufactured housing, senior housing and student housing assets in particular have benefited from the quest for higher returns, but that yield has compressed in recent months.
Flight to Safety
Capital flows are seeking pockets of economic growth and geopolitical stability. Asian investors from Hong Kong, Indonesia, India and Malaysia are diversifying into London, New York and other major western cities amid a flight to safety, though some remain constrained by tightened capital controls.
Nations on the Move
Influential market participants include American, Canadian, German, Saudi and Singaporean investors, including institutional and sovereign wealth funds as well as private capital. Watch for potential growth from superannuation funds in Australia and Japanese pension plans.
Multifamily properties continue to attract significant capital across Europe and the Pacific, as demand intensifies from downsizing seniors and mobile millennials who prefer to rent than own. Alternative sectors such as data centers and health care assets – driven by mega trends in cloud computing and an aging population – are seeing robust demand as well.
Value-Add vs. Core
In some regions, investors are moving up the risk curve to value-add opportunities. As the decade-long economic expansion slows, many are now migrating to core assets. Investors who do have an appetite for value-add will want to partner with local expertise, as these opportunities can be challenging to manage from afar. Overall, cap rates have been compressed and could remain so in the coming months.