The United States, Germany and Canada are expected to be the top three sources of global capital flows to real estate in 2021.
The latest instalment of the Active Capital report by Knight Frank has predicted that the focus of capital flows in 2021 will principally be between liquid, global safe-havens, as investors continue to seek out true diversification.
However, core, income-producing assets in ‘near-neighbour’ locations will also attract demand at a time when some physical travel remains subject to restrictions.
With the potential for more distress to be seen in 2021, investors from private equity funds, private capital and debt funds could also consider cross-border transactions further afield.
Global capital flows for H1 2020 were 23% lower than the same period in 2019 as the economic effects and physical restrictions imposed by the pandemic spread. Just over 26% of transactions were cross-border; a similar level to 2019.
However, this is largely due to a combination of locations outside the initial epicentre of the pandemic seeing strong first-quarter inflows, and transactions commenced before COVID-19 disruption bolstered the figures.
The report states that the office sector will continue to play a prominent role in global allocations, particularly in global gateway markets. This is because investment flows into specific office geographies have demonstrated particular resilience over the past cycles.
It further predicts more distressed assets coming to the market next year as fiscal and monetary support by governments unwinds.
“In many destinations, the lack of stock available for sale has limited transactional volumes. While governments and central banks support economies- although many are now in recession -we have yet to see much fallout in real estate,” it reads.
The report also predicts greater market supply in in prime property markets for rotational reasons in 2021, following the typical five-year financing terms now dated from 2016.
“In short, we should expect to see a range of assets- from the traditional office and through to the industrial, residential and alternatives sectors coming to the market for rotational reasons in 2021, even if some investors extend their business plans. These should offer a mix of cyclical and core opportunities,” it adds.
For gathering market signals, the report suggests the usefulness of investors monitoring private equity activity, which is often the first mover into a market and therefore a leading indicator.
Global capital flows will further be influenced by currency and hedging benefits, oil, geopolitics and travel disruption.