Global Commercial Property Investment Fell 26 Percent in 2020
But rose 84 percent in the fourth quarter from the previous quarter
Global real estate advisor CBRE reports that global commercial real estate investments increased 84% quarter over quarter to $ 290 billion in the fourth quarter, but declined 20% quarter over quarter 2019. The increase between the third and fourth quarters of 2020 was mainly due to a 97% increase in US volume. Even so, annual global investments were down 26% from 2019 due to the pandemic.
The fourth quarter rebound was significant in all three regions of the world as the promise of vaccine use and the ongoing economic recovery positively impacted investor sentiment. Despite a recurrence of COVID infections in parts of the world, fourth-quarter performance gives cause for an optimistic outlook for 2021.
American investment more than doubled from Q3 to $ 144 billion in the fourth quarter, leading the global recovery. That was 20% below the record volume in the fourth quarter of 2019 and 11% below the five-year average for the fourth quarter. However, the relatively solid end to 2020 resulted in a 60% year-over-year decline in Q2 and Q3 in a less brutal decline of 34% per year.
The US reported $ 135 billion in transactions in the fourth quarter, down 21% from a year earlier but up 97% from the previous quarter. This corresponded to 47% of the total worldwide volume in the fourth quarter. Simon Property Group’s acquisition of Taubman Centers for $ 3.4 billion was the only corporate-level deal in the US since February. For the full year, investments in the US were down 34%, in Canada by 29%, in Brazil by 15% and in Mexico by 57%. Mexico’s rising COVID-19 deaths have hampered economic and real estate market recovery.
At the sector level, the year-on-year decline in investment volume in multi-family houses was only 1% in the fourth quarter and in industry by 4%. Investors continued to flock to multi-family and industrial properties in America given their stable outlook and proven resilience in the face of pandemic uncertainty. Industrial (26%) and apartment buildings (36%) accounted for 62% of US investment in 2020, compared with 53% in 2019 (Figure 2).
The office space declined 35% year over year in the fourth quarter but saw a 93% increase over the third quarter, an encouraging sign for 2021. The retail and hotel sector recovery depends on vaccinations and increased mobility. Together, the two sectors accounted for 13% of total volume in 2020, compared to 18% in 2019.
EMEA investments rose 84% to $ 109 billion in the fourth quarter from Q3, up 25% from the fourth quarter of 2019 and 12% from the five-year average for the fourth quarter. The record volume in the first quarter brought the total for the year to $ 329 billion, a 17% decrease from last year, the smallest of the three regions.
The quarter-on-quarter increase in volume in the fourth quarter was mainly due to Germany, Great Britain and the Netherlands. However, year-over-year German Q4 volume was down 30%, the UK by 20% and the Netherlands by 10%. Denmark, Switzerland and Norway showed remarkable resilience throughout 2020, ending the year above their 2019 volume. Looking ahead, the recent reintroductions of lockdown measures could weigh on investor sentiment in early 2021.
The capital is increasingly being made available for multi-family and industrial facilities in the region. Together they accounted for 38% of total EMEA investment in 2020, up from 30% in 2019 (Figure 2). Multi-family investment increased 7% in 2020 and industrial investment increased 11%. Investors in both sectors accepted low returns for potential rental growth and low risk in these uncertain times.
The investment volume for offices and private customers recovered in the fourth quarter, increasing by 77% and 67% compared with the third quarter. However, on an annual basis, their volumes decreased by 34% and 5%. The office rebound in the fourth quarter was particularly noticeable in the UK and Germany, which focused on core assets, as employment growth picked up. Retail investment should remain stable at a low level. The hotel sector was down 66% in 2020. Investors expect more distressed sales in 2021.
APAC continued to demonstrate the broader economic benefits of an effective pandemic response. APAC investment volume increased 34% quarter over quarter to $ 36 billion in the fourth quarter and was on par with the fourth quarter of 2019, indicating a continued return to normal in the region. APAC’s annual volume decreased 21% from 2019.
Japan, China and Australia led the recovery in the fourth quarter as investors returned to gateway office markets such as Tokyo, Hong Kong, Sydney and Shanghai. South Korea, Japan and Taiwan held up well for the full year with annual changes of + 6%, -2% and -6%, respectively, thanks to their skillful management of the pandemic. India was a magnet for institutional investors in 2020 with an annual growth in investment volume of 11%. Not only is India a primary outsourcing destination for advanced economies, but its growing workforce and emerging economies offer untapped opportunities. Brookfield acquired an Indian office portfolio for $ 2 billion in the third quarter, and Blackstone acquired a retail portfolio of the largest mall operator in India for $ 1.2 billion in the fourth quarter.
APAC’s office demand is expected to remain stable despite the impact of remote working. Office investment rose 27% year over year in the fourth quarter and declined only 9% annually, representing 57% of total APAC investment. Logistics properties were in great demand. The volume increased by 25% in 2020 and their share of total investment rose from 12% to 19% (Figure 2). The distribution of returns between office and logistics assets is reduced. Some logistics investors are switching to greenfield development in search of higher returns.
The retail and hotel sectors were beginning to show signs of recovery in China and Japan, but lenders generally remained cautious. Investments in retail and hotel real estate decreased 43% and 69%, respectively. Investors are looking for opportunities in markets with large pools of domestic tourists such as Japan, Australia, and China.
2021 Commercial Investment Forecast
According to CBRE, the economic outlook for 2021 is positive for most economies, given accommodative monetary policy, additional fiscal stimuli and advances in vaccine use. As the economic recovery continues, global CRE investment is expected to normalize in 2021, particularly in the second half when workers return to the office and start traveling again. CBRE estimates that investment will increase by around 15% to 20% by 2021.