This contributed column is sponsored by Business Facilities LiveXchange.
Posted by Heidi Schwartz
The United States has emerged as the most desirable destination among global investors, despite recent political turmoil and economic uncertainty, according to a just released report from Colliers International. Overall, the new Global Investor Sentiment Survey found optimism about the economic outlook for 2014, and with this increased confidence, many investors are planning to expand, especially in “safe haven” cities around the world.
The Colliers report comes at a time when investors are paying close attention to others’ strategies as the competition for good investment opportunities increases. Respondents included major institutional and private investors who were asked for their outlook at the global and regional level for 2014 and beyond. With more than 500 responses from the U.S., Canada, Latin America, Asia Pacific, Europe and the Middle East, the results highlight a number of key indicators suggesting strong investor appetite for real estate assets, heightened confidence among global investors and increased risk tolerance, even in areas where the economy is less certain.
Discussing one of the more surprising findings this year, Tony Horrell, CEO, U.K. and Ireland, Colliers International said, “Worldwide, investors are willing to look beyond political circumstances and invest in areas with strong property fundamentals. In many regions, like the United Kingdom and Asia, investors are willing to take more risk on opportunities that will generate higher returns due to a clearer economic outlook and improving values.”
“Globally, investors are looking to grow, with 70 percent planning property portfolio expansions over the next six months,” Horrell added. “Overall, investors are optimistic about entering the market at such a dynamic time.”
Key takeaways from Colliers’ newest Sentiment report include:
- Shifting Focus on Fundamentals: Increasingly, investors are shifting decision-making criteria to focus on property fundamentals and yield. In the U.S. and the U.K., a shortage of commercial property is driving investor confidence.
- Increased Risk Appetite: In several regions, investors are becoming more willing to take risk when it comes to future investments in order to generate higher returns. However, EMEA investors remain cautious after the Eurozone crisis.
- Expansion on the Horizon: Seventy percent of the survey respondents plan to expand property portfolios in the next six months. In the U.S. and U.K., where steady economic improvement is expected in 2014, foreign and domestic investors will continue to drive capital flows. The survey shows continued growth in Asia outbound capital with investors spending $44.7 billion dollars on property outside their own country according to Real Capital Analytics (RCA) year-to-date Q1-Q3, 2013.
- Greater Competition in Stable Markets: Many investors cited difficulties in finding good investment opportunities, despite having plenty of capital. As a result, competition is growing in stable markets as investors strive to maintain secure returns. A large amount of capital is flowing from high-risk nations into more liquid safe-haven markets, especially gateway cities such asLondon, Tokyo, Sydney, and New York City which remain popular destinations for both cross-border and local capital.
- Keeping Capital Local: Most survey respondents prefer to invest in markets close to home, with only 10 percent looking outside of their domestic region for investment opportunities. Some who choose to invest across borders are sticking close to home regions, with Canadian investors spending nearly $8 billion dollars on property in the U.S. alone. U.K. investors are focusing on European markets spending $7.8 billion dollars on property investments outside their own country between fiscal Q1 and Q3 2013 according to (RCA).
- Office Properties Stay on Top: Globally, office property investment is the most popular, with industrial and logistics close behind for U.S. and Latin American investors. For Canadian buyers, retail takes the top spot, fuelling billions of dollars of capital growth domestically and in the U.S, as retailers look to expand into new markets.
- Cost of Debt Expected to Rise: Nearly half of the survey respondents expected the cost of debt to rise. Most investors are keeping a close watch on the U.S. Federal Reserve as it recovers from the 2013 Government Shutdown. However, large increases in transaction volume in secondary markets like Las Vegas, Indianapolis and Philadelphia indicate increased optimism in the U.S. Government’s ability to recover.
“Higher confidence will lead to greater investment in the coming year, even as buyers face the challenge of finding attractive opportunities, investment criteria will have to be more flexible!” Horrell concludes.