Simon Mallinson, Executive Managing Director at Real Capital Analytics, presents a study of the activity of the global real estate transactions of 2017
Slowing Global Transaction Activity Though Signs of Life in H2’17
Analysis by Real Capital Analytics (RCA) shows global transaction activity for income-producing assets slowed 8% in H1’17 and 9% in Q2’17 compared to the same periods last year. Overall activity including development site sales grew 5% YOY in H1’17 though this was bolstered by significant land acquisitions in mainland China and Hong Kong. Development site acquisitions declined 26% YOY outside of Asia.
At a global level, no property type recorded growth in the first half compared to last year, although the industrial sector slowed just 3% and was the only sector to record positive year-over-year growth in Q2’17. Benefitting from investor appetite for e-commerce logistic units, the resilience of the industrial sector is counter-balanced by weakness across a retail sector suffering from the move to online shopping. After several years in the doldrums Asia Pacific recorded 5% YOY growth in income-producing asset transactions during H1’17, whilst EMEA fell 12% and the Americas dropped 10%.
In Asia Pacific, Hong Kong, China and Singapore shone in Q2’17, offsetting weaker activity in Australia and in Japan. Hong Kong became the number one market in the region, pushing aside Tokyo for the first time. Chinese capital still flowed into Asia Pacific real estate, despite news about changes to capital regulations. Chinese investors deployed $9.5b in the region, a 46% YOY increase.
In the U.S. volume peaked in this cycle six quarters earlier, in Q4’15. Seasonal adjusted volume is now 13% lower than that peak and 9% down in H1’17 compared to last year. Canada has also seen volume slide 30% in H1’17 and 44% in Q2’17.
In Europe, the U.K. returned to prominence in Q2’17, one year after the vote to leave the European Union. Investment volume rose 5% YOY (in U.S. dollar terms) to reach $15.5b. This places the U.K. just above Germany which had occupied the number one spot in Europe for three successive quarters.
Despite the slowness of H1’17 volume, there is some optimism for the second half of the year. The pipeline of pending deals is significantly ahead of Q2’17 completed volumes in several markets. For example, France, a market that saw the recent elections impact on deal flow, has almost 140% of Q2’17 volume recorded in pending deals likely to complete over the next half year.
A common theme across the global markets is a disconnect between pricing and volume. Prices have stabilised or even climbed, whilst volume has fallen for six consecutive quarters. RCA’s recent published Global Cities commercial property price indices show that 27 leading global cities saw prices climb 8.3% over the past year, while transaction activity in these markets fell 10.8% over the same period. Plenty of capital is still seeking a home in real estate, the lending markets are stable and the spread to bond rates remains attractive. However, with investors balking at high prices and sellers not forced to sell, the effect is that current pricing is maintained while transaction activity slows.
Simon Mallinson will be presenting Real Capital Analytics’ latest research at MIPIM UK’s “State of the Global Investment Market” session on Thursday 19 October, 2017.
This article originally appeared in Estates Gazette
Photo credits: © Getty Images / SasinParaksa