Real estate, alternative real assets and other diversions

Rents and capital values rise in global real estate – Americas industrial leads Retail rents are easing as the sector reinvents itself

The Economist

2018 has registered a very healthy start with strong global GDP growth and historically low G7 unemployment rate. The global economy is poised to record the fastest growth (3.1%) in seven years, driven by the turbo charged U.S. economy and continued strength in emerging Asia.

Occupier demand is robust due to rising consumer confidence and tightening job market, while Commercial Real Estate (CRE) investment maintains its momentum as the cost of capital stays low.

Capital value growth continues to outpace rental values in all regions and sectors. Global rent and capital value indices recorded growth in Q1 2018 across all property types except for retail rent, which dropped 0.75% quarter-over-quarter.

In due course, we think rising interest rates will curb the rate of capital value growth, but for the time being global conditions are very favourable to real estate.

The office sector took the crown in EMEA and APAC for rent and capital value growth. EMEA’s office capital value has outgrown other regions for three consecutive years with an annualized quarterly growth rate of 10.6%. Rental growth was on the upside as well due to strong employment and leasing volume growth.

Despite a strong supply side in Asia, capital value growth has been accelerating since 2016 and rent growth has stabilized above 2%. Improvements in domestic sentiment and capital inflows have driven capital value growth especially in Hong Kong and South Korea. In Q1 2018, APAC also recorded the highest quarter-over-quarter office rent growth since 2014.

Office demand was relatively weaker in the Americas. The number of people who want to work remotely and companies that provide the flexibility to do this are rising. The U.S. companies are also becoming more efficient in the use of space.

Americas industrial overtook EMEA office as the brightest spot in the world of CRE, showing the greatest y-o-y rent growth (4.6%) and capital value growth (9.8%). The sector is benefitting from unprecedented innovation and capitalization throughout the supply chain, in warehouse automation, inventory optimization and digital management. The demand for centralized distribution hubs, fulfilment centers and same-day service locations exceeds supply, particularly for high-quality, modernized and well-located properties. While the pace of industrial rent growth has moderated as new supply increased, capital value growth has accelerated due to robust investor interest.

The APAC and EMEA Industrial sectors are quieter, having surged in the 2013 to 2016 period. Nonetheless, e-commerce is creating further growth. Logistics upgrades to fresh grocery and food delivery are boosting demand for industrial and mixed-use real estate in densely-populated areas.

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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