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