The commercial real estate (CRE) segment observed several ups and downs across the globe in 2017. The hiccups in the sector notwithstanding, the year ended on a promising note in prominent CRE markets, with 2018 holding enough potential for continued momentum. A number of disruptors impacted the real estate market in 2017, the major ones being political polarization, changing diversity and a generational shift in the workforce, amongst others. Millennials investing in properties was yet another significant game changer observed during the period. Other factors such as Brexit, Trump presidency and shifts in international relations also had a direct bearing on the sector.
Here is what the markets looked like for the three major global markets:
US: Political ‘polar’ization, yet warm for investors
Political polarization directly affected the real estate segment in the US, as opined by industry experts, thus preventing long-term fixes to issues such as infrastructure, affordable housing, local and state pension liabilities, as well as education. The recent changes in immigration policies and its effect on trade, cross-border investment, retail and hospitality is expected to influence investor confidence to a large extent. The other issue that has an effect on real estate is the technology boom, with AI, VR and drones changing the way properties are bought and sold. Going forward, technology is going to play an even more important role in the real estate segment.
The Trump presidency and the elections that led up to it have also had important bearings on the investors as well. With investors expecting tax cuts, it is implied that they were somewhat conservative in their investments. While these factors do not define the economy explicitly, the US is still viewed as a stable investment option. Low-interest rates make the CRE segment in the US appealing to the investor despite the Federal Reserve’s continued slow push towards higher interest rates.
Europe: Germany gains pole position in real estate investment
Reeling under the influence of Brexit, Europe has been an interesting market for real estate. In recent times, there has been a perceptible shift observed in the investment pattern with investors focusing on global market instead of limiting themselves to regional investments. Many investors are exploring niche investment options like hostels, senior centres and service apartments. Thus, the changing dynamics of the European market entail the industry’s need to update itself with new skill sets, new ways of collaborating outside traditional industry boundaries and different business models, to gain a competitive edge in the new real estate ecosystem.
Interestingly, several German cities have been touted as preferred investment markets, with Berlin topping the list, closely followed by Frankfurt, signifying that Germany might be observing a positive spillover effect of Brexit. On the other hand, Brexit has turned out to be an aberration - a small blip on the radar, with the lowering of rentals and soft blow to the economy termed as temporary. London continues to remain a much favoured investment option. Meanwhile, the lines between commercial and residential spaces are blurring with more number of people moving into the city. Today, urbanization is on the rise in Europe and is shaping the region, underlying the need for mixed use spaces and adequate infrastructure.
Asia Pacific: New investment options galore
Asia Pacific region has emerged as one of the preferred hotspots for investors in the past few years. The biggest movers and shakers were Melbourne and Sydney, where investors sought to maximize returns via rental growth. Tokyo real estate continues to be a safe and steady investment option; and is expected to continue the momentum in 2018 as well. Going forward, Vietnam, that has been touted as an emerging market, is projected to see greater traction while Singapore will witness increased investor confidence in both residential and commercial spaces.
Furthermore, with banking reforms in Australia and China, investors are looking at new investment options like mezzanine debt. Another key development in the Asia Pacific region has been the foray of India into REITs, after much speculation, with RBI intervening and introducing regulations.
These pointers are just a brief snapshot of what the global real estate industry is poised at; it remains to be seen how the industry fares in the year to come, especially with the kind of disruptions ahead. While the past one year was a tumultuous ride, bringing a shakedown to the industry, it seems to have realigned its goals, offering investors a multitude of investment opportunities in the forthcoming period.