Patterns of Global Capital Flow Real Estate Capital Flows (from one continent to another) have been more than $100 billion in each of the last three years North America was the largest source of cross-regional capital flows every year between 2007 and 2015, but was been overtaken in 2016. Over the last ten years that amounts to over $300 billion globally, 80% of which was spent in Europe. Asia has leapt as a source of real estate investment in the rest of the world, from 6% of flows in 2007 to 37% in 2016. Europe was the favoured destination of Asian Capital, but has been overtaken by North America in 2015/16. Europe European investors generally account for around 15% of cross-regional flows. Their cross-border purchases within Europe are four times higher than their purchases outside Europe. Middle East is a steady source of cross-regional investment on a par with Europe. 60% of flows out of the Middle East end up in Europe. 1 COUNSELORS OF REAL ESTATE PATTERNS OF GLOBAL CAPITAL FLOW
SOURCE OF CROSS-REGIONAL CAPITAL FLOWS NORTH AMERICAN CAPITAL HAS TAILED OFF IN 2015-16 US dollars (billion) 70 60 50 40 30 Europe 12% Middle East 14% Asia 31% North America 38% Aggregate since 2013 20 10 0 North America Asia Middle East Europe Other 2013 2014 2015 2016 Source: Research, 2016. 2 COUNSELORS OF REAL ESTATE PATTERNS OF GLOBAL CAPITAL FLOW
Hong Kong Los Angeles Shanghai New York Seattle Boston San Francisco Milan Washington DC Chicago Sydney Paris Miami Madrid Melbourne London WE Seoul Atlanta London City Tokyo Berlin Frankfurt REAL ESTATE SPREADS OVER GOVERNMENT BONDS EUROPE IS THE BIGGEST RECIPIENT OF CROSS-REGIONAL CAPITAL Prime office yield (net) relative to 10-year government bond, Q4 2016 6.0 5.0 4.0 3.0 2.0 1.0 0.0 1.0 2.0 3.0 4.0 Americas Markets Asian Markets EMEA Markets Pacific Markets Source: Research, Macrobond, Q4 2016. Prime Office Yield 10-year Government Bond Spread 3 COUNSELORS OF REAL ESTATE PATTERNS OF GLOBAL CAPITAL FLOW
North American Capital is more diverse All cross-regional capital is strongly biased to offices and to gateway markets, but North American capital goes deeper into the market than others Example 1: Gateway Cities Gateway cities account for a huge proportion of cross-regional investment typically the top ten global cities receive 60%* of such flows. North American capital is far less concentrated. The top ten cross-regional destinations for North American capital account for only 33%* of the total. Example 2: Sector Choice The European market typically* breaks down 43% offices, 24% retail, 9% industrial. Mixeduse and mixed portfolios make up about 4% of transactions. Investment from Asia and the Middle East is biased to the office sector 62%. North American investment is underweight offices 39% and overweight industrial (13%) and mixed-use (9%) *Based on 2013-2016 4 COUNSELORS OF REAL ESTATE PATTERNS OF GLOBAL CAPITAL FLOW
KEY DESTINATIONS IN EUROPE: TOP COUNTRIES 2013-2016 Total investment from North America, % of total Total investment from Asia, % of total UK London UK London Germany Germany France France Spain Spain Netherlands Belgium Italy Italy Ireland Netherlands Poland Denmark Sweden Russia Norway Portugal Russia Switzerland Czech Republic Czech Republic Source: Research, 2016. 5 COUNSELORS OF REAL ESTATE PATTERNS OF GLOBAL CAPITAL FLOW
SECTOR CHOICE OF CROSS-REGIONAL INVESTORS IN EUROPE Investment from North America, % of total 2013-2016 Other Cross-regional investment, % of total 2013-2016 Offices Offices Retail Retail Industrial Industrial Mixed/Multi Use Mixed/Multi-Use Hotel Hotel Other Other Source: Research, 2016. 6 COUNSELORS OF REAL ESTATE PATTERNS OF GLOBAL CAPITAL FLOW
Early mover advantage US investors into have a reputation for anticipating the cycle and being early movers in recovering markets Spain The Spanish market was very badly hit by the GFC and market activity fell to 20% of the pre-crisis level. There was a strong recovery in 2014 and 2015. US investors represented over 25% of transactions in Spain in 2013 and 2014 moving in ahead of the recovery (against only 10% over the rest of the last decade. Italy US investors have transacted more than 25% of real estate transactions in Italy in 2013-2015 Over that time transaction activity increased by over 200%, prime office yields in Milan dropped from 5.3% to 4%. 7 COUNSELORS OF REAL ESTATE PATTERNS OF GLOBAL CAPITAL FLOW