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M&A and CRE Despite a mild pull back, global M&A levels suggest buoyant capital markets and continued demand for CRE

The Economist

For a while we have been interested in the relationship between global M&A (Mergers and Acquisitions) activity and CRE (Commercial Real Estate) investment. Strong M&A activity is highly correlated with strong CRE investment levels.

The latest data shows that the value of global M&A is approaching the market level of 2007(1). A 30% year-over-year increase through the first three quarters of 2018 (totaling US$3.1 trillion) puts M&A transaction value just 7% below the same period of 2007. Given the current momentum, 2018 may eclipse 2017 as the best year ever for corporate consolidations.

Figure 1 exhibits the global volume of M&A and real estate transactions in TTM (Trailing-Twelve-Month) values with a smoothed trendline of quarterly M&A(2).

R-Squared, which measures the degree to which a dependent variable can be explained by one or more independent variables, reaches 0.75 between real estate transactions and the smoothed quarterly M&A. It implies that 75% of the variance in the real estate capital flows can be explained by the smoothed level of global M&A. The correlation is particularly helpful in predicting the volume of real estate investment, which typically lags M&A activity by three or four quarters (denoted by the dark green line).

The data suggest that CRE investment will remain strong and will possibly increase, for at least the next couple of quarters.

There may be no direct link between corporate M&A, but there are a number of quite strong associations:

The Economist

About Richard Barkham

Richard Barkham

Richard is a specialist in macro and real estate economics. He joined CBRE in 2014 as Executive Director and Global Chief Economist. Prior to taking up his position with CBRE Richard was a Director of Research for the Grosvenor Group an international business with circa $10bn of capital under management in real estate. He was also a non-Executive Director of Grosvenor Fund Management where he was involved in fund strategy, risk analysis and capital raising. Richard is the author of two books and numerous academic and industry papers. In 2012 he published Real Estate and Globalisation (Wiley Blackwell, Oxford), which explains the impact on real estate markets of the rise of emerging markets such as China and Brazil. He has extensive consulting experience and is a Visiting Professor in the Department of Construction and Project Management at the Bartlett School, University College London. He holds a PhD in economics from the University of Reading where he taught, in the Departments of Economics and Land Management, between the years of 1987 and 1998.​​​

Articles by Richard Barkham

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