According to new research by real estate firm JLL, total direct real estate investment is expected to have reached US$ 689 billion during 2015, with expansion predicted for 2016.
Institutional investors continue to allocate significant capital to real estate, and they are broadening their investment to include segments such as student housing, healthcare and the private rented residential sector in markets outside the U.S.
As business and political leaders convene to discuss global issues at the World Economic Forum annual meeting in Davos, Switzerland, it is clear that real estate has established itself as a key driver of economic growth in both established and emerging cities across the globe. The top 30 cities accounted for nearly half (48.5 percent) of total global real estate investment in 2015.
According to Colin Dyer, Chief Executive Officer of JLL: “As we mark the sixth straight year of robust commercial real estate investments, we are optimistic the market is still on track to average US$ 1 trillion per year by the early 2020s.
The ‘Big 6’ cities of New York, London, Tokyo, Paris, Hong Kong and Singapore will continue to lead in terms of transactional activity, and we anticipate more cities will become more investible and challenge the ‘Big 6.’”
The research from JLL identifies additional trends regarding city investment.
Investor demand for prime assets in the world’s most globalized metropolitan economies reached new heights in 2015, with New York overtaking London in investment levels. Those two cities accounted for a record 13.2 percent of global activity in 2015.
The ‘Big 6’ combined were relatively steady at 21 percent of total investment activity.
U.S. cities accounted for half of the Top 30 cities in 2015. Seattle, San Diego and Miami registered sharp growth in investment activity and re-entered the Top 30. Honolulu appeared for the first time boosted by a few major retail deals.
Global commercial real estate investment in 2015 was 3 percent below 2014 levels (US$ 700 billion) and 9 percent below the all-time high in 2007 (US$ 758 billion).
Direct commercial real estate investment into emerging markets (excluding China) fell by one-third, from over 8 percent of the global total in 2014 to 5.5 percent in 2015. Factors included China’s equity market correction, lower commodity prices and the potential negative impact of higher U.S. interest rates on emerging market currencies. Shanghai and Beijing, however, had a stronger 2015 and remain the only emerging world cities among the Top 30.
There is particularly strong investor interest in ‘New World Cities’ which are small to medium-sized, have a favourable infrastructure and liveability platform and have achieved global reach through specialisation. Examples include San Francisco, Seattle, Munich, Miami and Barcelona. A core set of 32 ‘New World Cities’ now account for nearly 20 percent of global real estate investment compared to about 10 percent in 2006.
Economic and real estate rebounds in Europe prompted Madrid’s presence in the Top 30 for the first time since 2009, while Milan sat just outside the Top 30 in the 31st position.
