There is a growing global war chest of capital for real estate, with institutional
investors looking to increase their real estate allocations and new sources of capital emerging,
according to Colliers International’s latest report. Increasing allocations to real estate from global
institutions reached at least $840 billion in 2018, adding to the $370 billion in closed-end funds waiting
to be deployed to real estate in 2019.
The growing influence of sovereign and family wealth would double this allocation, and this only
represents a 10.4% allocation to real estate. As allocations continue to expand alongside levels of
wealth, new capital looking at real estate could hit $2.5 trillion by 2020.
Global real estate assets under management (“REAUM”) doubled over the latter half of the investment
cycle from 2014, with the top 100 global fund managers increasing REAUM from $1.6 to $3 trillion.
However, growth in REAUM for the top 10 global fund managers has been at a slower pace than the
top 100 (60% and 88% respectively) pointing to increasing capital diversity.
Of the additional 298 real estate funds closed last year, combined with existing dry powder, the bulk of
money is now aimed at opportunistic, and value-added plays. At the defensive end of the risk spectrum,
debt funds continued to grow, with available capital in funds up to $61 billion as of March 2019. Colliers’
analysis of a range of global investors, shows that at least two thirds either have, or are in the process
of, deploying more funds in debt vehicles and structures, some with a particular focus on development.
Richard Divall, EMEA head of Cross-border Capital Markets, Colliers International, said: “Despite
economic growth cooling and a subsequent slow down in investment activity, global real estate assets
under management continue to rise and real estate allocations are up. There is a more cautious
approach to investment as a result of Brexit uncertainty and increasing tensions between China and
the US, but new sources of global capital continue to emerge despite consolidation amongst the larger
real estate fund managers. The source of active global capital remains in the hands of institutions and
private equity, but there are signs of a shift in spending power over the next five years as family offices,
sovereign wealth funds and foundations increase their interest in the sector.
“The other big trends we are seeing is increasing momentum into the logistics and residential sectors,
which have been the fastest growing sectors globally and in Europe. There has also been a big shift
into development, as constrained availability drives a need for new product, while falling yields are
cutting into standing assets returns.”
Europe has been a direct beneficiary of the increase in global capital diversification, particularly in terms
of fresh capital from Asia, which accounts for 30% of cross border investment notably from Korean,
Singaporean and Hong Kong based investors with increasing interest from Japan and Australia. It is
expected that Asian capital will continue to increase as a result of positive foreign exchange conditions
and the hedging benefits of buying in Europe.
The same hedging benefits apply to North American capital, which invested heavily across continental
Europe in 2018 with similar levels expected this year. Europe accounted for five out of the top six
destination countries for US capital in 2018 – Spain, UK, France, Germany and the Netherlands most
notably in the city metros of Madrid, London, Paris and Amsterdam.
Big global cities dominated the deployment of capital with New York and London leading the charge,
ahead of Los Angeles, Tokyo and Paris. A further four markets – Hong Kong, Washington DC, San
Francisco and Chicago join the global gateway club of nine that have amassed more than $100 billion
of investment over the last cycle.
Damian Harrington, head of EMEA research, Colliers International, said: “A striking trend across
many major global cities is the growth of international, cross-border capital yet there are clear
differences by geography. London really stands out as a truly global city with around 70% of investment
generated outside of UK borders encompassing an increasingly balanced source of capital from the
Americas, Asia and Europe. Many of the major US markets are almost the reverse including New York,
although central Manhattan has been a magnet for cross-border capital, accounting for closer to 45%
of activity in recent years, with diverse sources of European and Asian capital taking positions in the
“Within Europe, the major German cities of Berlin, Munich and Frankfurt alongside Stockholm form the
European contingent of the next big group of global cities witnessing between $50-100 billion in
investment activity since 2008, with Madrid and Amsterdam picking up momentum. The role of crossborder
capital continues to grow across European cities and is at or well above the 50% mark. Although
European and EMEA-domiciled funds continue to dominate, North American investors play a role
everywhere. Asian-domiciled activity is starting to expand into more locations including the core
German, UK and Paris markets, but also further afield into Amsterdam, Madrid, Lisbon, Helsinki and
Warsaw. As the influence of Asian capital grows alongside the diversity of investor, we expect to see a
bigger influx of capital into a range of key European cities, especially those with a good story to tell.”
Source : Company