Why The Best Investment In 2016 Might Be Global Real Estate

Of the more than 600 investors surveyed, 52% said they will increase allocations towards real estate this year. Only 11% will decrease. Real estate investment worldwide is on track for continued demand growth. It’s the one asset where investors are almost unanimously bullish. London, Paris, New York, San Francisco, Tokyo and Sydney are the main targets for direct cross-border real estate acquisitions over the next 12 months.

Global transactions are expected to exceed 2014 levels and will approach pre-financial crisis levels. More than half of the respondents with multi-asset real estate portfolios also said that they will add to their holdings in the next 12 months.

For some fund managers, it’s getting harder to meet return expectations, particularly in the “overcrowded” core markets. Cities like New York and London, where entire real estate projects are often built and marketed for wealthy foreigners, are too niche and maybe getting a bit tired. Some fund managers told Colliers that they are having a hard time meeting client expectations in those cities.

On the risk side, there is apprehension that the economic environment could change at a moment’s notice. China and U.S. interest rates are just two issues resonating with investors.

Ironically, despite high risks in the world economy, real estate buyers are taking on increased debt to fund purchases. It’s a “when all else fails” approach that keeps real estate hot in most world class cities. Colliers said that the equity phase of the cycle is giving way to a debt phase. This is particularly true in Europe, where interest rates are likely to stay low for longer and further QE rounds from the ECB are expected to make real estate the new fixed income play for Western Europe.

Big Cities, Preferred Properties

Within the Americas, the U.S. is the only place to be with 94% saying they will increase their investments here this year. Only 5% said they will be investing more in Mexico and even less said so about Brazil. Within the U.S., the top three cities are San Francisco (27%), New York (24%) and Los Angeles (22%). Logistics, such as warehousing, plus office space and shopping malls are the top three candidates for increased investment this year, according to Colliers.

In Europe, the U.K. is far and away the hot spot with 63% adding to their property portfolios there this year. London (43%) takes the cake, of course, followed by Paris (19%) and Frankfurt (14%). Offices, shopping centers and luxury retail are among the top three investments in continental Europe, while U.K. bound investors are after office space, logistics and residential properties.

In Asia, Japan and Australia take a commanding share of investment capital, followed by Hong Kong, China and Singapore. A little over a third of respondents said they will be allocated more funds to real estate there. The top cities are Tokyo, Sydney and Melbourne. Within the emerging markets, only Beijing and Shanghai top the list. Office space, residential and logistics are some of the biggest targets in Asia.

For retail investors who like this idea but don’t have a million dollars to burn on studio apartments on the Upper West Side, there are exchange traded funds for this market. The three largest include State Street Bank’s SPDR Dow Jones International Real Estate (RWX) fund; Vanguard’s Global Real Estate Fund ex-USA (VNQI) and the U.S. overweighted SPDR Dow Jones Wilshire Real Estate (RWO) fund. The all sort of track one another with the exception of RWO, which has the U.S. to thank for its beta. Over the last 12 months, all three have underperformed the Dow Jones Real Estate Titans 30 Index.

Filed under: Headlines by Wendy Jackson
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