Global property markets have held their positive course in 2018 as transactional volumes in the second quarter rose by 10% year-on-year to US$173 billion. This brings first half activity to US$341 billion, a 13% increase from 2017 and the strongest performance since 2007.
The second quarter saw US$63.4 billion of investment activity in the Americas, level with the previous year. This brings investment across the first half of the year to $132.3 billion, 9% higher than the same period in 2017. The U.S., the region’s largest market, drove this performance with half-year volumes up by 11% on last year. Elsewhere in the region, volumes in Canada dropped by 5%, with larger declines in Mexico and Brazil (down 43% and 78% respectively).
European real estate markets have maintained their strong performance into the second quarter, with volumes reaching US$67.5 billion (up 11%). Across the first half of the year, activity was up 9% to reach US$128.1 billion. This represents the highest half-year volumes recorded in the current cycle, although exchange rates continue to play a role, as relative dollar weakness has driven volumes up while growth in local currency terms is more modest. The region’s biggest markets continue to lead, with first half volumes up 19%, 23% and 60% in the UK, Germany and France.
In a continuation of the strong performance over the previous two quarters, year-on-year investment activity in Asia Pacific increased by 26% in the second quarter, reaching US$41.7 billion. This brings the first half total to US$81.0 billion, the highest level on record. Strong second quarter uplifts were seen in Australia, Hong Kong, New Zealand, South Korea and Taiwan.
Recent investment transactions
Investor demand remains robust with a growing number of groups increasing their allocations to real estate thanks to its defensive qualities, steady income stream and relative performance compared to other asset classes. Shifting demographic and technological trends are driving appetite for scale, especially in the logistics and alternatives sectors. Given this, we project global investment in commercial real estate over the full year to broadly match 2017 levels at around US$715 billion, despite the supply of product coming to market remaining limited relative to previous years.
Income growth continues to underpin capital appreciation, which grew by 5.7% year-on-year in the second quarter for prime office assets across 30 major office markets. While Hong Kong (+18% year-on-year) currently tops the capital value growth table, underpinned by robust investor interest and continued rental growth, continental European markets are collectively among the strongest performers, notably Milan, Berlin, Amsterdam, Frankfurt and Brussels.
Capital growth for prime office assets in 2018 is expected to slow to around 4%-5% for the full-year 2018, as rental growth moderates and yields flatten.
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