The Scoop on Commercial Property Investment
- Jul 08, 2015
Colliers International Group Inc.’s first-ever U.S. Capital Flows Research and Forecast report noted that commercial property investment in the U.S. is off to a strong start in the first quarter of 2015, with year-to-year volume nearing $129 billion.
“What has remained obvious is the global flow of capital into real estate is as robust as ever, that we are in a market where prices continue to escalate rapidly, and we’re in a market where cap rates continue to compress,” Brian Ward, Colliers International’s president, Capital Markets & Investment Services, told Commercial Property Executive. “And all of that in the face of what’s probably at least some form of moderate interest rate increase here, probably by September.”
The report analyzed data supplied by Real Capital Analytics, and showed that office and apartment transactions led the market, with quarterly sales of $33.5 billion and $33 billion respectively.
“What’s going on with office is that the cap rate opportunities have presented more interesting return possibilities than some of the other asset classes,” he said. “No. 2, as we’ve seen increase in foreign investment in the United States, I think that foreign investment has definitely had a preference toward office assets. The third thing that we’re seeing is, as capital begins to go further out, the risk curve and looks for better returns, we’re starting to see more of a shift toward suburban office as an opportunity for select markets to get better returns.”
The report showed investor confidence has continually emboldened, as evidenced by the increase in cross-border investments across property types. Cross-border investment more than doubled (+111 percent) this quarter over one year prior, capturing $22.2 billion in properties across all major types. In fact, Canadian investors were edged out by sovereign- wealth funds from Asia as the leader in cross-border investment into the U.S. Examples include GIC’s acquisition of the sizeable IndCor industrial portfolio from the Blackstone Group.
In examining the first quarter of 2015 figures, numbers were approaching fourth quarter of 2014 in terms of volume and Q4 of 2014 was a large quarter. In fact, looking at the fourth quarters of the last three years, Q4 has just been on fire in each of the last three years.
“So if we keep up this pace, from a volume perspective, we will blow past 2007 here. So is that significant or not? I don’t know. A lot of correlations are made to 2007 and the fact that we could surpass 2007 does not mean that we’re at the peak of the market necessarily,” Ward added. “However, we are in pretty heady times in terms of the volume of real estate transacting today.”
Looking ahead, Ward said to expect continued aggressive moves in the market and the probable quarter-point increase in short-term rates from the Central Bank in September are not going to affect the market at all.
“The only things that could tip the market are something like a Black Swan event, an external event that could cause people to be scared and hunker down,” he concluded. “But barring that, I think we’re going to see the balance of 2015 finish very strongly, and I would say likely surpass, from a volume perspective, 2007.”