According to recent research form JLL, Europe, specifically the UK, is the hub of transaction activity, both inbound and outbound, as the U.S. takes a slip down the leaderboard.
JLL's Q1 Global Capital Markets Research report showed that first-quarter global transactional volumes were 1 percent below the same period last year at US$136 billion. Volumes were about 6 percent higher than the Q1 average from 2012 – 2016.
Europe saw a strong increase in activity, as volumes climbed by 3 percent. Meanwhile, investment in Asia-Pacific remained consistent from last year and rose by 1 percent, while the Americas fell by 5 percent.
Striking was the precipitous fall of New York, which had been the transactional activity leader for the past two years. A 62-percent drop in transactional volumes saw the city lose its top spot in the city rankings. London regained its spot as the most traded city in the world as New York fell to number five on the list. Sandwiched between London and New York were Los Angeles and Tokyo. The largest jump into the top 10 was Vancouver, which shimmied its way up to number eight on the list from 57 at the same time last year. Paris and Shanghai dropped out.
In regards to export capital, the UK was tops in the first quarter with the U.S., last years leader, slipping down the rankings. Germany and China also fell out of the top three as outbound capital volumes declined by 32 percent and 36 percent respectively.
All the more noticeable, Europe's transaction activity was not stymied in the face of political uncertainties tied to Brexit and Dutch and French elections. Investors unequivocally were not frightened away from investing in the UK, which saw its highest transactional volumes since 2015. Real estate investments remain attractive from a yield perspective and while the U.S. did stagger, JLL wrote that despite the the bigger than expected pull back in the U.S., there does seem to be an improvement in the supply of investment stock, especially in developed markets.
Michael Barnello, president and CEO of LaSalle Hotel Properties, recently described the U.S. lodging sector as a seller's market.
Capital Flow
Last year, one area London did not fare well in was foreign capital inflow, which was was down by nearly 50 percent compared to the 2014-2015 average, according to JLL. However, that's turned around. In the first quarter of 2017, London became the largest recipient of foreign investment in the world with more than $4 billion of investment. And, for the second quarter in a row, it was investors from Hong Kong supplying London with the most investment dollars.
Further, Asian investors, particularly private buyers from Hong Kong and China, have been among the most active in London since the Brexit vote, a reaction to the decline in sterling and a slight drop in capital values.
In the top 10 largest recipient cities of cross-border investment, only one other European city, Madrid (8), cracked the list. It was aided by two large transactions, one in hospitality, when a private Israeli investor bought a 50-percent stake in the Four Seasons Madrid for nearly US$125 million. The hotel is expected to open sometime this year.
The rest of the list was made up of U.S. and Asia cities, including Washington, D.C. (2), New York (3), Singapore (5), Shanghai (9) and Los Angeles (10).
One area where capital outflows have stalled is the Middle East. According to JLL, inter-regional capital flows from the Middle East hit their lowest quarterly volume since 2009. Israelis, who were the most active group from the region, contributed almost half of the US$903 million that was exported out of the region in Q1.
The U.S. attracted the most capital in the first quarter due to sustained interest from Asian buyers and global funds.
Overall, cross-border flows fell by 10 percent in the first quarter, but were 17-percent higher than the first quarter average from 2009–2016.
Inbound cross-border capital was up by 17 percent in Asia-Pacific, largely, as JLL pointed out, because of activity from global funds. In the EU, the British were the biggest movers of cross-border capital, while buyers from Hong Kong spent nearly US$3 billion exclusively in the UK. Asian buyers were among the most active exporters of capital in the Americas in the first quarter, with investors from Singapore, Japan and China driving most of the activity.
As Q1 real estate trading activity moved to and out of the UK, the hotel sector had a nice bump in the quarter over the same time last year, with global transactional volume jumping 11 percent.
Though the first quarter saw a slight drop in global transactional volumes, investors are not shying away from real estate investment—even in the face of political and economic uncertainty. Moreover, the first quarter of 2017 showed that the sustained compression of prime yields may be coming to an end. In the U.S., yields
moved out by 10-20 basis points, lending support to the perception that yield compression for this cycle has come to an end.
JLL predicts an active year in commercial property markets with full-year volumes between US$625-650 billion.