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International property handbook
2017 trends and a look back at 2016
Investors have significant amounts of capital to deploy, and the fundraising market for real estate investment remains strong. We believe that this will help sustain real estate investment into 2017 and beyond.
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- Key trends in the United States
- Key international trends
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Tracking real estate capital flow
The International property handbook from Deloitte’s Global Real Estate & Construction group tracks real estate capital flow, and provides a view of investment trends and key deals in the most active international markets. It reflects back on 2016, analyzing economic data and real estate investment in 21 countries around the world to provide insights on potential trends in 2017.
Key trends include:
- Overall economic outlook is stronger, and there’s a significant increase in cross-border investments, especially in Europe.
- While the total investment volume remains stable, countries with positive investment volume growth are those in which investors expect growth due to macroeconomic indicators, expectations of rental growth, and yield compression.
- Offices continue to be the preference for investors.
- Private and unlisted funds are the most active net investors, followed by institutional funds.
- The capital raised continues to increase and investors are exploring new alternative markets.
Download the handbook to learn about the trends we are seeing in the market—and contact a Deloitte professional to learn more about the report and what it means to your business.
An overview of the United States
Economy: The US economy recorded growth of 1.6% during 2016. A further decline in the unemployment rate is expected, as well as a higher growth rate of 2.3% during 2017.
Property investment: Real estate investment volumes decreased by 9.5% since 2015, mainly caused by the drop in cross-border investment. The office market is experiencing a moderate slowdown, however activity in the residential market has increased considerably.
Yields: The strength of the investment market has delivered a further reduction in prime office yields during 2016, however slowing capital value growth is expected to limit further falls.
Rents: Virtually all the major US office markets have seen solid rental growth this year and limited new supply points to further gains ahead. In the retail sector, strong increases have been seen in the best quality shopping centers.
Real estate key considerations:
- The results of the US presidential election raised the volatility alarm during the last quarter of 2016. However, equity markets have outperformed expectations, having reached record highs in the first weeks of 2017.
- The Federal Open Market Committee raised rates, and markets are expecting further raises during 2017.
- Multifamily investment represented 32.1% of the total in Q3 2016, being the most active market.
- US real estate benefited from offshore capital, coming mainly from Asia. Both institutional buyers and real estate investment trust investment volumes dropped to 20.3% and 35.5%, respectively.
Investment market key considerations
- The interest rate raise by the Fed, compared to European low interest rates, is strengthening US dollar compared to foreign currencies. This, combined with the increases in public debt yields, is putting pressure on demand for real estate as investors are increasingly able to find low-volatility alternatives to obtain similar yields.
- Domestic and continental investments have been dominant during 2016 accounting for US$380 billion, followed by foreign investment with US$68 billion.
- New York City continued to be the leader for investment, accounting for US$69 billion in 2016. Investment activity in Los Angeles and San Francisco metropolitan areas was also robust at US$70 billion between the two cities
International economic overview
- 2016 was a volatile year due to the global political uncertainties including Brexit, the US election, and the Italian referendum, as well as China's slowdown.
- The United States saw moderate growth. However, the financial markets have responded vigorously since President Trump was elected and the labor market continues to show improvement.
- In Europe, some economies have been developing better than others, such as Ireland, Spain, and Sweden; but in general terms, the European Central Bank’s economic policies and the countries’ efforts have made for a strong and continuous economic recovery.
- The United Kingdom’s decision to leave the European Union by 2019 has raised some concern about the future of the Union, raising uncertainty.
- Ireland has been one of the fastest growing economies in the Eurozone. Meanwhile Russia stands in last place; its economy contracted 0.6 percent during 2016 and its inflation is above 7 percent.
- Some recent data from the Chinese government indicates that the economy is stabilizing, fueled in part by government stimulus and an easing of monetary policy.
- In property investment markets, where the major investors look for “macro risks,” we see a correlation between the trend in property investment and the macroeconomic indicators such as GDP growth.