Coronavirus disruption and structural changes are set to push real estate investors to safe-haven and neighbouring destinations in the coming year, according to an analysis by estate agent and consultancy Knight Frank.
The annual Active Capital report predicted that 60% of cross-border real estate investments in the coming year will be into ‘near-neighbour’ countries, with investors focusing on the most liquid and transparent locations.
The US is expected to be the leading destination for real estate investment in 2021 — with an estimated $13.3bn of capital coming from its neighbour Canada — followed by the UK, Germany and Australia.
It is also set to be the leading source of capital in 2021, with investors forecasted to deploy $23.1bn into real estate in the UK, Germany and France combined.
During the second quarter of 2020, the UK led as a destination for cross-border capital into residential property, with $6.2bn of investment. Meanwhile, Japan ranked second with $3.4bn of investment into its residential sector.
Despite an investor appetite for residential opportunities, the office sector maintained its dominance as the most active in the first half of 2020, with notable investments into global gateway markets.
While others have predicted companies are keen to relocate to mid-sized cities, the Knight Frank report found that top innovation-led cities will continue to magnetise people, businesses and real estate investors.
London ranked as the top innovation-led city globally for real estate capital flows, followed by New York, Cambridge, Zurich and Tokyo.
“There is, as yet, little evidence to predict that we will see an exodus of flows from major cities,” says Victoria Ormond, a partner at Knight Frank’s capital markets research team.
Other than office
While the office sector maintains its appeal to investors, structural changes, such as online retailing, nearshoring and demographic changes, have caused increased demand among investors and occupiers for asset classes other than offices.
“While the pandemic might be accelerating these structural changes, they are not necessarily changing them,” says Ms Ormond.
“This shift is not going to happen overnight … we expect the office sector to remain a significant proportion of allocations into the future,” she adds.
Nonetheless, as companies have looked to nearshore operations and reevaluate their supply chains, real estate investors have followed suit. Cumulative cross-border investment volumes in the industrial sector were around 5% higher at the end of September 2020, compared with the same point in 2019.
Coronavirus, along with its concomitant economic effects and physical restrictions, have put pressure on global real estate investment. While overall real estate capital flows fell by 23% in the first half of 2020, compared with a year earlier, there was an even sharper decline in cross-border greenfield investment.
According to fDi Markets, the FT’s greenfield investment monitor, the number of greenfield FDI projects in the real estate sector fell by almost 40% in the first half of 2020 compared with a year earlier.
Multinational office provider International Workplace Group was the most active greenfield investor, announcing 80 projects between January and June this year, up from 72 projects in the same period in 2019.
Meanwhile, its rival WeWork ranked fourth with 17 announced greenfield projects in the first six months of 2020, down from 114 a year earlier.