Within the last 6 days, I had the opportunity to listen to some expert commentary on the state of the capital markets and a forecast for 2018 - I attended the Bisnow event "Follow the Money" and listened to Cushman & Wakefield's Webinar "Where is the Yield?" Here is some of the information I thought was worth sharing:
Current state of capital markets
- Looking back, investment values were up 26% in 2017 and we are clearly at the late stage of the cycle now - it will be harder to find opportunities
- The state of the market remains buoyant - there is a bit of a slowdown of high quality assets being brought to market (especially in London), but the appetite for them is still high. There is a lot of capital being raised - around $250 billion (which could be leveraged to well over $1 trillion)
- The global economies seem to be accelerating/growing in unison - this means stronger global trade (and bodes well for assets like logistics)
- Europe has a very low office space vacancy rate – London is at 5.2% (8th lowest the world) and Birmingham is doing even better (with only 4.8% vacancy rate)…Berlin is world's best at 2.2%
- This has resulted in record flows of capital into Europe – over 50% of London capital deals in 2017 went to overseas investors, with Madrid, Amsterdam, Helsinki, Berlin, Paris also seeing strong global investment (over 30% of all Europe deals came from overseas capital – by far the most ever)
So, where do you go to find the yield?
- "Yield" (or better described as an improvement on ROI) will come from "growth" – trends are that capital investment will refocus on growing rental yields, development, asset re-positioning and adding services. Alternative sectors/sub-markets will continue to be sought out for better initial yields.
- Regions have opportunities particularly on the logistics front. London core funds seem more conservative and have almost abandoned the London market - overseas investors remain keen on a global basis, but with a London focus. It's time to sell anything perceived as a "trophy asset" and reinvest elsewhere in the market.
- Across the whole of the UK, offices still seem to be the go to asset - 48% across the UK and 30% in London of investment values went into offices.
C&W suggest that your global strategy could look something like this:
- Core/Core+ Funds: Retail in Oslo, Offices in Paris, Logistics in Ile de France and, as an alternative, Datacentres in Key Western Metros
- Value Add Funds: Retail Parks in Germany and UK, Offices in Copenhagen, Logistics in CEE and, as an alternative, Student Housing as forward commitments across CEE
- Opportunistic Funds: Retail in Portugal, Offices in London's emerging sub-markets, Logistics across the UK and, as an alternative, Hotels in Southern European resorts
Summary Where is the Yield? This webinar will cover the key metrics that will affect commercial real estate performance and investment in 2018. Topics include: Forecast for GDP, interest rates, and employment Where capital will flow next Investment strategies for 2018 and 2019 Opportunities in the student housing market