According to a new report from real estate company CBRE, global commercial real estate investment volume grew 95 percent year-over-year in the third quarter of 2021 to $315 billion, bringing the year-to-date total to $800 billion—up by 3 percent from the same period in 2019.
Global
With nearly half of the world’s population vaccinated and COVID delta variant infections subsiding, global gross domestic product is on track to reach pre-COVID levels by year’s end. With ample liquidity and global bond yields low despite higher inflation, investors eagerly deployed capital to commercial real estate in Q3, putting 2021 on pace for record annual investment volume, according to CBRE.
Investment in the Americas, Europe, Middle East, Africa and Asia-Pacific regions was on par with 2019 levels, driven by economic recovery amid the rise in COVID vaccinations. On a year-to-date basis, global volume exceeded that of 2020 by 44 percent and 2019 by 3 percent.
Investor interest in the multifamily sector—especially in the U.S., Germany and Sweden—significantly drove investment volume growth in Q3. The value resilience of high-quality assets in other sectors, including hospitality, suggests improving market conditions, according to CBRE.
Americas
Americas investment volume continued to show “remarkable strength” in the quarter, led by the U.S. multifamily sector. The region’s total investment volume surged by 152 percent year-over-year in Q3 and by 74 percent year-to-date. Excluding entity-level transactions, investment volume grew by 141 percent year-over-year. Compared with the pre-COVID trend, the accelerated growth of Sun Belt markets has offset a shortage of large-ticket office transactions in gateway markets so far this year, but the comeback of trophy office sales is highly anticipated and critical for a full recovery of commercial real estate investment.
Hotel sales have recovered well in the past six months, driven by coastal markets and portfolio acquisitions. With easing travel restrictions, domestic and international tourism should support a further rebound of service-based retail and hospitality.
The multifamily sector’s share of total Americas volume rose to 39 percent in Q3 from an average of 28 percent between 2015 and 2019. Sun Belt markets led by Dallas, Atlanta and Phoenix had a boom in population and employment growth that led to significant capital inflows over the past 12 months.
Meanwhile, after two years of exceptional performance, the industrial sector showed some signs of easing back, as its share of total volume dropped to 23 percent. The industrial sector is expected to stay healthy on the back of e-commerce and manufacturing growth, but investors are becoming more selective in the face of record-low cap rates.
The office sector’s share of total investment volume dropped to a new low of 19 percent in the region. Retail’s share fell to 9 percent. Delayed returns to the office and a potential cultural shift toward flexible working have caused investors to mainly focus on stabilized core assets. Office cap rates, albeit based on fewer trades than normal, were largely on par with pre-COVID levels. In the retail sector, cap rates fell for grocery-anchored shopping centers. Suburban assets outperformed urban assets, mainly driven by higher returns.
Forecast
Global commercial real estate investment is poised for a strong Q4 and a record year in 2021. Strong momentum continues for multifamily and industrial investment, while retail and hotel investment is expected to rebound with increased international mobility. The highly anticipated office recovery is taking place in suburban markets, with urban markets likely to follow next year.