Real estate continues to see investment at record levels

• Global commercial transaction volumes reached an all-time high of $800 billion, increasing 4% year-over-year and making 2019 the most liquid year on record.
• Outperformance in the U.S. and core markets in Asia are driving growth, led by New York, Japan, China, South Korea and Singapore.
• Paris has jumped into a leading global position, benefitting from significant foreign investment, low interest rates and strong fundamentals.
• Direct commercial investment volumes in London are expected to rebound this year following a Brexit resolution, having almost halved in 2019.
• Investors are increasingly favoring high-growth, mid-sized cities as they focus on access to yield and longer-term resilience.

London remains the second-largest destination for cross-border capital targeting real estate, despite political uncertainties. London experienced a 41% decline in direct commercial real estate investment in 2019, according to research published today by JLL (NYSE: JLL). This resulted in the market slipping down to an estimated $23 billion of direct investment. However, the level of liquidity targeting London is expected to increase in 2020 with a Brexit resolution, particularly from overseas investors who are keen to exploit London’s yield arbitrage over other major European cities.

Globally, 2019 was an impressive year for transaction volume, which reached $800 billion, the highest level on record. However, ongoing political uncertainty and a gradual slowdown of the global economy are combining to create market conditions that favor established global cities such as New York, Paris and Tokyo. Investors are increasingly cautious and are struggling to invest the near-record amount of available capital sitting in funds across the world.

The findings show that Asia Pacific continues to perform well, with investment in the region rising each year since 2015, reaching a peak of $169 billion in 2019. Helped by a more global outlook from foreign investors, Shanghai, Beijing and Singapore have all seen elevated investment in 2019 – over $16 billion across the three cities according to data analyzed by JLL.

Richard Bloxam, Global CEO of Capital Markets at JLL, said: “As the real estate cycle extends into its tenth year, investors are increasingly favoring locations and sectors that are resilient to economic or geopolitical disruption. Cities that offer a diverse range of talent and innovation attract significant investment interest, with the industrial and ‘living’ sectors continuing to perform well in the current global climate.”

Real estate investment volumes are expected to remain elevated throughout 2020 as investors continue to view it as an attractive asset class. Looking ahead, investors will be cautious in their decisions and look for sectors and markets deemed more robust to economic or geopolitical disruption. 

Beyond the gateway cities, high-growth, secondary cities in both mature and transparent markets will continue to present opportunities for investors. Mid-sized cities with innovation credentials, a highly qualified workforce and cost efficiencies are seeing economic growth and increased concentrations of human capital. These innovation geographies are attracting companies and investors are following these enterprise trends, factoring in talent considerations and innovation potential as a means of mitigating risk and spotting future resilience. This will continue to benefit liquidity in leading innovation hubs such as Silicon Valley, Boston and San Francisco. However, this hierarchy is likely to be more fluid as we look beyond 2020 and market dynamics shift.