Consumer confidence boosts retail sales
Increased consumer confidence and retail sales are fuelling optimism in the U.S., Europe and selectively in Asia Pacific. Several standout U.S. markets, primarily gateway cities, are now witnessing conditions typical of a peaking market as rents see assertive growth and vacancy continues to compress. Meanwhile, Europe’s recovery markets have experienced strong rental growth over the quarter, particularly in Italy, Portugal and Ireland. In Asia Pacific the demand picture is still varied, with the economic backdrop of monetary stimulus supporting retail spending in Australia, although rental growth has been limited in most regional markets over the quarter.
Realignment of logistics networks heightens demand
An increased need to fit logistics real estate more strongly into supply chain strategies and implement seamless distribution networks is boosting global warehousing demand, with build-to-suit (BTS) schemes set to remain the driving feature of future logistics development. In the U.S., absorption is still outpacing new supply and vacancy rates have dipped below the last cyclical low. Likewise, strengthening occupier demand in Europe now firmly supports previous expectations of 2015 take-up volumes representing a new record. In Asia Pacific, third-party logistics companies and retailers are bolstering rental levels in China.
Robust appetite for quality hotel assets
Investor appetite for quality hotel assets continues to grow, with global hotel transaction volumes reaching US$60 billion over the year to date, representing a 37% uplift over the equivalent time last year. All regions have enjoyed positive growth over the first three quarters of 2015 with the Americas leading the pack, up 47% over the same period in 2014. Investors from mainland China continue to be important exporters of capital.
Institutional investors continue to target residential sectors in Europe
Rental apartments are still outperforming in the U.S., with rental growth remaining strong and all major markets recording positive absorption. Institutional investor demand continues to increase in Europe, with transaction volumes set for a record year in Germany and prime yields at historic lows in France. Sales volumes are still shrinking in Dubai, although falls in prices have been modest. In Asia, sales activity in China has strengthened on the back of a more accommodative policy stance, including a cut in interest rates.
Volumes higher, even with U.S. dollar headwinds
Despite Chinese stock market volatility going global and the ongoing saga of U.S. interest rate movements, real estate investment shrugged off all challenges and continued to move higher over the first three quarters of 2015. Q3 investment volumes were US$173 billion, a 2% rise on Q2 and in line with Q3 2014. However, currency movements continue to understate the true level of activity by around 10%; using fixed exchange rates from a year ago, volumes would be US$189 billion for Q3, also 2% higher than Q2 but, significantly, 9% higher than Q3 2014. Over the first three quarters of 2015 transactional volumes at US$497 billion are 3% higher than the 2014 pace using floating exchange rates, yet13% ahead using fixed rates.
Capital value growth for prime office assets: Global Top 5
United States up, rest of the Americas lower
The U.S. market remains largely unaffected by the slowdown in activity in the rest of the region, with 18% growth over the first three quarters of the year, even though Q3 activity was broadly flat on a year ago. Elsewhere in the Americas, all the other main markets are down, reflecting the challenges being faced by commodity-driven economies in Canada (down 18%), alongside emerging market economic concerns in Mexico (down 80%) and Brazil (down 70%). Overall year-to-date regional activity is US$229 billion, 10% up on the 2014 pace.
Europe remains in the sweet spot
European markets in local currency terms continued to be extremely active in Q3, 22% ahead of Q3 2014 and 16% ahead of the 2014 year-to-date pace in euro terms. Germany is leading the charge with volumes almost 50% higher than the first three quarters of 2014, with the UK, Nordics and the Benelux all supporting the wider regional growth story. France is the only major market struggling in 2015 with volumes down 4% in local currency terms although a number of landmark deals are set to close before year-end. In U.S. dollar terms, activity in Q3 was US$65 billion, 2% higher than Q3 2014 but 4% lower over the first three quarters at US$180 billion when compared to 2014.
