A considered outlook.
International integration has faced numerous challenges over the past decade. Brexit and the Trump presidency are clear examples where traditionally outward-looking trading economies turned inwards. More recently, the tragic war in Ukraine points to a shifting world order. Meanwhile, the pandemic has severely altered the way people behave, as well as how goods move around the world. Supply chains have been disrupted by lockdowns and other restrictions. Consumers turned to shopping and working more locally, often from the comfort – or confines – of their homes.
These changes are not, in fact, isolated examples. They reflect more longstanding changes. Global export volumes as a percentage of GDP peaked in 2008 (World Bank national accounts data and OECD National Accounts data files), and trade routes had converged around regional blocs like the European Union, North America and east Asian nations.
Recent data suggests that cross-border real estate investment has lost some ground since the pandemic. Investment volumes by investors outside their own home market accounted for 19% in the 12 months to Q1 2022, according to RCA figures, down from 23% in the five years prior to the outbreak of Covid-19. Stripping out deals done within an investor’s home region, the share of deals done cross-regionally stood at 8%, also down on the five-year average.
A reasonable question to ask would be if a global approach to real estate investment is still relevant in this seemingly more fragmented and localised world?
At least some of the weakness in cross-border activity seems transitory, as many of the conditions that facilitate international property transactions were severely disrupted because of the pandemic. Air travel and business travel more broadly were severely curtailed. Despite some fantastic technological progress to inspect buildings remotely, real estate investors still seemingly prefer to view properties live and in person. In fact, a recent survey from INREV highlights that institutional investors plan to allocate more capital to property this year than last, and a significant share of this capital is destined for countries outside their home region (INREV Investor Intentions Survey 2022). Asia Pacific investors plan to deploy 41% outside of Asia Pacific, Europeans to deploy 47% cross-regionally and 19% of North American capital deployments are planned for locations outside the Americas).
