Strong capital inflows to U.S. cities
Testament to the vigour of the U.S. market, the top global investment destinations for the first three quarters of 2015 are dominated by U.S. cities. New York is having its strongest year on record, with year-to-date volumes of US$37 billion, up 33% on the same period last year and higher than the equivalent period for any previous year. U.S. secondary markets are also generating significant interest, with Seattle, San Diego, Atlanta and Miami all registering robust increases in year-to-date transaction volumes over the same period in 2014. Demand for prime assets in the ‘Super Cities’ continues to be substantial, with London and Tokyo rounding out the top three global destinations.
China dusts off volatility and doubles activity
Asia Pacific’s investment market activity remains broadly flat against the 2014 pace over the first three quarters at US$89 billion, with 2015 activity boosted by a third quarter which was 1% higher than a year ago at US$33 billion. However, the make-up of the numbers is very different, with China making a significant contribution to activity with volumes up over 45% compared to the first three quarters of 2014. Although Australia and Japan are down in U.S. dollar terms, both have seen their currencies weaken in recent times, and at the local level Australia is in line with the 2014 pace while Japan is over 15% ahead.
New record possible, but exceptional final quarter needed
JLL is maintaining its forecast for full-year volumes for 2015 in U.S. dollar terms at US$740-760 billion, despite the ongoing strength of the U.S. dollar. It is possible that we could surpass that figure and set a new record of above US$760 billion, but it will take an exceptional level of activity to reach that level given that Q4 2014 was the most active quarter on record. Capital-raising by private equity funds has spiked in recent quarters implying that 2016 will be another buoyant year for investment activity, and at present we anticipate that 2016 will be at least on a par with 2015.
Further yield compression in Q3
Strong investment activity has continued the compression of yields for core office assets in primary markets. Brussels, Paris, Stockholm and Sydney all registered compression of 25 basis points in Q3. Only Hong Kong saw a marginal increase in prime yields during the quarter.
Capital appreciation expected to slow in 2016
Capital value appreciation on prime assets (across 26 markets) stood at an annualised rate of 7.9% in Q3. The healthiest year-on-year growth was recorded in Madrid, Paris and London, where yields have hardened sharply over the past 12 months. Los Angeles, San Francisco and Boston have also outperformed.
Annual capital appreciation is expected to register 7.5% by year-end 2015, slowing to about 5% in 2016, driven primarily by income growth. Star capital value performers in 2016 are likely to be Moscow, Madrid and Boston.
