On the heels of a very strong 7-year run of foreign capital buying Miami condos and homes, Miami has something new to be cheerful about -- the growth of foreign real estate investment capital now pouring money into Miami's commercial real estate sector.
According to the latest research from global property advisor CBRE Group, worldwide commercial real estate investment activity reached $407 billion in the first half of 2015, the strongest first half (H1) to a year since 2007, and up 14 per cent year over year.
The Miami metro area ranked 7th among the world's leading global capital destinations, just ahead of Tokyo and just behind Washington D.C., with a total of $7.7 billion of foreign and domestic investment during the first half of 2015. This is the first time since the global financial crisis that the Miami metro area was among the top 10 global real estate investment destinations.
Though rapid growth has been maintained for several years, the rate of growth slowed in H1 2015 and was vastly different at a regional and country level. The Americas experienced growth of 31 per cent year-over-year, while a strong dollar impacted activity in EMEA (Europe, Middle East & Africa) and Asia Pacific (APAC). In dollar terms, EMEA was up just 5 per cent from H1 2014, with APAC down 19 per cent year-over-year. When measured in local currency EMEA grew by 25%, while a decline in APAC was more muted at 9% year-on-year.
Last year, the Miami metro area ranked 12th globally, with a year-end total US $13.1 billion invested from foreign and domestic sources. The Miami metro area also continues to be a particularly attractive destination for international capital, rising from 49th place in 2013 to 19th place in H1 2015, with a total of $913 million invested from international sources so far this year.
The U.S., U.K. and Germany remain, by far, the largest CRE investment markets globally. A combined total of $301 billion was transacted in these three countries in H1 2015--representing an unusually high (74 per cent) share of the global market and 10 per cent above the long-term average of 64 per cent.
"Capital flows into real estate are well supported. Even ignoring rental value growth, real estate offers a 'spread' over bond rates of between 200 to 300 bps across global markets and capital will continue to be attracted to the sector," said Iryna Pylypchuk, Director, Global Research, CBRE. "The influx of new sources of capital targeting real estate as part of long-term liability-matching allocation strategies is helping to extend the investment cycle. At the same time, this pushes the 'old capital' into niche sectors, prompting expansion of the investment universe."
The recent economic slowdown in Asia has led to China, Singapore and South Korea dropping down in the top 20 market rankings during H1 2015. Canada was the only non-Asian market to experience a notable fall in the rankings, with its western regions relying heavily on oil for economic activity, weaker occupier fundamentals slowed investment activity. Rapid uplifts in investment in Europe's recovery markets Italy, Ireland and Spain meant significantly improved positions in the rankings.
Cross-border investors have grown in influence to become an important driver of CRE investment globally, particularly in the last 24 months, and are changing the shape of the market. The world's leading destinations, in terms of global capital flows, is a balanced mix of cities across all main regions--London was the most targeted city by cross-border investors in H1 2015, followed by New York and Paris. This contrasts with the top destinations for overall investment where the bias is strongly on the U.S.--New York was the leading city overall, followed by London and Los Angeles.
At a regional level, the influence of global investors varies from as little as 10 per cent in the Americas, to almost 50 per cent of the market in EMEA. The largest contributor to these flows during H1 2015 was the U.S., accounting for a stand-out $25.4 billion of investment outside its home market. The next three largest sources were Canada ($8.5 billion), Germany ($7.1 billion) and China ($6.6 billion), with their combined volume still considerably less than the U.S.
"The influence of global capital is growing to the point that these investors are becoming the "market-maker" in setting the price in the most desired and liquid markets across the globe. Within this growing wave of cross-border capital, there are elements of old and new," said Chris Ludeman, Global President, Capital Markets, CBRE.
"A recurrent wave of U.S. equity funds continues to explore global opportunities in search of higher returns off the back of strong buying power of the U.S. dollar. German capital is searching for steady investments outside their home market--a notable shift in strategy post-GFC. Despite low oil prices, Middle Eastern buyers remain active, with the investor base growing and strategies targeted at greater geographic and sector diversification.
"There are numerous new sources of capital that have emerged only recently. With its commodity driven economy slowing, Canadian investors have sought opportunities abroad. The lower oil price has triggered and accelerated global deployment of capital from the Middle East's non-institutional investors, particularly private high net worth. However, of all the new sources, Asia has been the most captivating due to the size, speed and potential long-term impact brought by the recent regulatory changes; this has allowed many of the local pensions funds and insurance companies to invest globally for the first time," Mr. Ludeman added.