Global Commercial Real Estate Investment Blossoms in 2015

Image Source:  Kevin Gill

Image Source: Kevin Gill

Analysts and data suggests 2015 will continue to see international capital flows and commercial real estate investments growing and building upon the last two years. So how much capital is flowing? Where is it going and where are the opportunities for individual Canadian investors?

Factors Driving Global Real Estate Investment in 2015:

  • Geopolitical unrest
  • Failure of BRIC nations to offer safe and appealing CRE opportunities
  • Entry of major sovereign wealth funds
  • Need of pension funds and HNW individuals to make new investments
  • Flight capital to safety and security
  • Low interest rates
  • Need to minimize tax liability

Where the Capital is Coming From

According to Real Capital Analytics, as of November 2014:

  • Inter-regional investment in the Americas had reached $17.4 billion
  • Domestic investment in the Americas had topped $338 billion
  • Asia Pacific had invested $17.4 billion in the Americas
  • The EMEA had similarly invested 8.1% of capital ($17.4B) in the Americas

Where the Capital is Going

According to Preqin data and a CCIM Institute report in January 2015, there is an additional $220 billion in capital waiting on the sidelines, which is poised to be deployed into real estate investments. This is up almost 20 percent from Dec. 2013, which saw almost $700 billion in global commercial real estate transactions (a seven year high).

Oxford Economics forecasts suggest strong investment in North America and specifically retail establishments, which is based on fundamentals and growing global affluence. The CCIM Institute points to an ongoing slowdown in China dragging down Asia Pacific demand, while tight monetary policy in the UK has slowed growth and turned off investors.

Office, multifamily and retail has been and is expected to continue to be the top choices of global investors. Industrial real estate in North America is currently suffering from significant uncertainty due to low oil prices.

Compressed cap rates and peak asset prices in gateway cities are likely to push more foreign investors to destinations that offer cheap leverage and strong secondary cities, which provide more value and a better security cushion for wealth preservation.

For the Individual Canadian Investor

What does it all mean for individual Canadian investors? Individual investors ought to continue to find select opportunities in smaller deals and will benefit from partnerships and low Canadian interest rates. Yield and cash flow will continue to be more important and prioritized over pricing fluctuations and expectations of cashing out in the short term.