- Sep 26, 2013
When Paris sneezes, Europe catches cold,” Prince Klemens von Metternich, first state chancellor of the Austrian Empire, commented during France’s reign of power in 1830. Some variation of the prince’s remark has been applied to many dominant nations over the years, but nowadays pretty much any country can sneeze and the whole world feels a chill, so intertwined are global economies.
Of course, the degree to which a nation’s malaise threatens to trigger an epidemic depends on the size of the economy in question. Hence, Portugal’s fiscal crisis caused less of a stir than Spain’s, although Europe’s multiple breakdowns—afflicting Greece, Italy and Ireland, as well as Spain and Portugal—have raised fears that the virus could spread still further.
The world’s economies are now inextricably integrated, and multinational corporations move easily from country to country. From manufacture to distribution to sales, products cross many borders, and big financial firms and other service providers likewise offer their skills around the globe. Real estate service companies have become adept at following their clients to new markets, ensuring consistent quality of care. That high standard is doubly rewarded as U.S.-based real estate service providers attract demand around the world.
Global expansion is not quite so infectious among real estate investors, who constantly weigh risks abroad against opportunities at home. Opportunity funds accounted for much of U.S. investment in foreign real estate during the last upcycle, but their institutional operators pulled in their horns when the financial markets crashed five years ago, noted Peter Hobbs, managing director & head of research for global real estate performance analyst IPD. In doing so, U.S. investors reflected the worldwide tendency to cut back on crossborder deals during the recession, according to CBRE Research. Observed CBRE Group Inc. global chairman of research Ray Torto: “When we looked at the total flow of volume, I was somewhat shocked to see what a large share of it was domestic.”
As economies around the world improve, real estate investors are out exploring again. Institutions, at least, are this time pursuing a strategy that appears to have staying power. Having discovered the value of geographic diversity in stock and bond portfolios, they are now striving to spread real estate risk among markets and property sectors worldwide.
Achieving success in global business isn’t easy. It requires prowess at bridging cultural differences, staying abreast of widely varying laws and managing diverse currency risk. It also calls for an understanding of demographics and the other factors that place a distinct stamp on every nation. And if you are a real estate investor or service provider, you must master the multitude of local nuances that determine the most attractive submarkets—demand drivers, development pipelines, rent levels and cap rates, to name a few. In short, the world’s real estate market presents competitors with a highly complex playing field.
The global market, however, is here to stay. And for those ready to venture outside their native comfort zones, its real estate sector offers abundant opportunity.
Suzann D. Silverman, Editorial Director