The volume of commercial investments increases by 95% per year in the third quarter
According to global real estate consultant CBRE, with nearly half of the world’s population vaccinated and delta-variant COVID infections declining, global GDP is on track to reach pre-COVID levels by the end of the year. year. With ample liquidity and low global bond yields despite higher inflation, investors eagerly deployed capital into commercial real estate in the third quarter, setting 2021 on pace for record annual investment volume.
Global investment volume grew 95% year-on-year in the third quarter to $315 billion. All three regions of the world – Americas, EMEA and Asia-Pacific – saw strong investment activity, comparable to 2019 levels. of 2019 by 3%.
Investor interest in the multi-family sector, particularly in the United States, Germany and Sweden, significantly boosted investment volume growth in the third quarter. Acquisitions of industrial and logistics properties remained popular in all regions. Office and retail investment volumes continue to recover, but the resilience of high-quality asset values suggests improving market conditions.
Investment volume in the Americas continued to show remarkable strength in the third quarter of 2021, led by the US multifamily sector. The region’s total investment volume jumped 152% year-on-year in the third quarter and 74% year-to-date. Excluding entity-level transactions, investment volume increased 141% year-over-year. Compared to the pre-COVID trend, accelerated growth in Sun Belt markets has offset a dearth of large box office transactions in gateway markets so far this year, but the return of trophy desk sales is very expected and critical for a full recovery of commercial real estate investment.
The multifamily sector’s share of total Americas volume increased to 39% in the third quarter, from an average of 28% between 2015 and 2019. Sun Belt markets, led by Dallas, Atlanta and Phoenix, boomed population and employment growth which has led to significant capital inflows over the past 12 months.
Meanwhile, after two years of stellar performance, the industrial sector showed signs of slowing down, with its share of total volume falling to 23%. The industrial sector is expected to remain healthy on the back of growth in e-commerce and manufacturing, but investors are becoming more selective amid record cap rates.
Hotel sales have recovered well over the past six months, driven by coastal markets and portfolio acquisitions. With the easing of travel restrictions, domestic and international tourism is expected to support a further rebound in service-based retail and hospitality.
The office sector’s share of total investment volume fell to a new low of 19% in the region. The retail share fell to 9%. Late returns to the office and a potential cultural shift towards flexible working has caused investors to focus primarily on stabilized core assets. Office cap rates, although based on fewer transactions than normal, were broadly comparable to pre-COVID levels. In the retail sector, cap rates fell for malls anchored by a grocery store. Suburban assets outperformed urban assets, mainly due to higher yields.
Economic reopening and a reduction in COVID infections, particularly in Europe, restored investor confidence and returned EMEA investment volume to its pre-COVID trend. The region’s total volume grew 56% year-on-year in the third quarter to $94 billion. Year-to-date, investment volume increased by 10% compared to the same period in 2020 and was comparable (-2%) to 2019.
Sweden (186%), the Netherlands (126%), Germany (96%) and the United Kingdom (68%) led the year-over-year rebound in the third quarter, mainly thanks to a rapidly growing multi-family/residential sector, including a $10.6 billion euro (9.1 billion euro) increase in residential portfolio acquisition by Heimstaden in Germany and the Nordics. The UK’s industrial sector has also attracted a large amount of capital from cross-border investors.
The share of the multi-family and industrial sectors in the total volume of investments in the EMEA region reached 27% and 19% respectively in the third quarter. Both sectors have been significantly boosted by the pandemic, with capital mainly moving into these two outperforming sectors. Markets in Germany, Sweden and the Netherlands have matured with increased multi-family supply. The UK and other markets are expected to follow, driving further growth across the continent. Investor appetite and user demand for industrial properties has remained strong due to the growth of e-commerce.
The office sector’s share of total investment has fallen to 31%, from around 40% pre-COVID, due to continued uncertainty over office utilization. But it still held the highest share of any industry as rental rate growth resumed in Tier I markets and occupiers began to return and make rental decisions.
Despite a continued decline in the volume of retail investment, a rebound seems likely over the next few quarters based on the relatively low pricing of retail assets. A slight rise in hotel investment in the third quarter meant that the worst was over for the sector, with very few distress sales.
Asia-Pacific investment volume grew 24% year-on-year in the third quarter to $34 billion. Year-to-date volume is $102 billion, up 41% from the same period in 2020 and exactly the same as the comparable level in 2019. Supply and rising commodity prices have affected the region’s economic outlook, which will likely dampen the volume of investment in 2022.
Hong Kong (354%), Australia (121%) and Japan (89%) led the year-over-year growth in Q3. In Japan, the $2.5 billion sale/leaseback of Dentsu’s corporate headquarters echoed a global trend of corporate occupiers removing owned real estate from their balance sheets. Other major office markets like Seoul, Shanghai, Melbourne and Hong Kong also performed well in the third quarter. In addition to flagship assets, secondary offices in prime locations with potential for upgrading or repositioning are also attracting interest due to flight-to-quality occupant demand. The share of the office sector in the total volume of investments in Asia-Pacific remained close to 50%.
The industry’s share of total investment fell slightly quarter over quarter to 21% in the third quarter, but remained well above the 2015-2019 average of 13%. Almost all countries have seen strong growth during the pandemic, especially Australia and mainland China. Strong investor demand accelerated the compression of core asset cap rates and prompted investors to move up the risk curve.
The retail and multifamily sectors each accounted for around 10% of total investment with an upward trend in Q3. Hotel investment has yet to pick up, pending a broader lifting of travel restrictions. These sectors represent upside potential for the fourth quarter and next year as capital seeks counter-cyclical opportunities in a tight yield environment.
Global commercial real estate investment is poised for a strong fourth quarter and record year in 2021. Strong momentum continues for multifamily and industrial investment, while retail and hospitality investment should rebound with increased international mobility. The much-anticipated office recovery is unfolding in suburban markets, with urban markets likely to follow next year.
CBRE estimates that the annual volume of global investments will increase by around 28% in 2021 and, due to a solid base, a more moderate rate of 8% in 2022.