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Real estate remains a force as the Fed awakens

Chicago, London, Singapore, 11 January, 2016 – Real estate outperformed other asset classes in 2015 as record investment in the U.S. helped drive global transactional volumes throughout the year.

   According to JLL, early indications from 2015 data showed that global real estate investment in USD terms is likely to finish the year around US$689 billion, 3 percent below 2014 volumes, with the final quarter of US$194 billion, 15 percent below the record-breaking final quarter of 2014. However, based on fixed exchange rates, volumes reached US$748 billion, 5 percent above 2014 and close to a new record. The strengthening dollar has reduced the dollar value of local market activity. The U.S. was a standout with transactional volumes reaching a record of US$294 billion, 9 percent growth over the year.

   “As we move into 2016 investor sentiment seems to be more cautious, but there is certainly no sign of investors pulling back in any meaningful way, rather we should expect growth from 2015 levels to be more measured,” says JLL’s Global Capital Markets Research Director, David Green-Morgan.

   Early estimates for 2015 show that, as an asset class, real estate will return 10-12 percent on investment. As a global proxy, the S&P 500 returned 2.85 percent in 2015, while benchmark U.S. 10-year notes’ returned 0.78 percent during the year.

   In early January, the World Bank cut its 2016 forecast for global economic expansion by 0.4 percentage point to 2.9 per cent, though that is still faster than 2015’s sluggish 2.4 per cent. As investors continue to seek opportunities amid slower economic growth, JLL is expecting 2016 global volumes to reach between US$720-730 billion.

   As the weight of capital seeking real estate investment increases in the coming year, the lack of supply may force investors to seek opportunities in lesser-known markets and in alternative real estate classes such as student accommodation and retirement homes, says Green-Morgan.

Regional highlights

Americas: U.S. is the driving force

   The Americas set a new record for transactional volumes in 2015, at US$313 billion, a 4 percent increase on 2014 volumes and above the previous high of US$304 billion set in 2007. Although this marks a new benchmark, the rate of growth from previous years is slowing as highlighted by an 11 percent decline in Q4 2015 from the previous Q4. The U.S. continues to be the driving force with 9 percent growth over the year and a new record of US$294 billion, whereas the rest of the region has been a drag on volumes, with the next best performer Canada seeing a fall in volumes of almost 30 percent. The ending of the commodity cycle plus emerging market economic issues have hampered investor appetite in markets outside of the U.S.

EMEA: Region wide growth in core & secondary markets

   In USD terms European volumes are 9 percent lower in 2015 at US$253 billion but in local currency they are much more buoyant with 8 percent growth over 2014 levels. All of the major markets across the continent are ahead of 2014; Germany and the Nordics stand out with almost 30 percent growth. Central and Eastern Europe was the only sub-region to see a decline on last year’s volumes, although Russia bucked this trend with volumes up almost 50 percent.

Asia Pacific: China & Hong Kong bounce back

   Asia Pacific volumes are 6 percent lower than 2014 at US$123 billion with the final quarter 15 percent down on a year ago. However, it is a mixed picture across the region with weaker currencies in Japan and Australia playing a part. Both markets are approximately 20 percent lower in USD terms, similar to the drop in their respective currencies. China and Hong Kong conversely have performed well during the year with volumes up 47 percent and 65 percent respectively compared to 2014.