Commercial real estate sustained robust demand globally in 2018 with recorded transaction volumes reaching $900. The commercial real estate sector has been able to attract private capital due to a number of macro and micro-economic factors according to the latest release of Knight Frank’s Wealth Report. Here’s a list of the macros:
Low Interest Rates
Low interest rates in many markets have pushed yields on government bonds down, forcing investors seeking higher returns to seek alternative assets with the ability to meet the required hurdles. It while pursuing this course that some investors have found commercial real estate a formidable arsenal for churning out returns.
Global savings have grown since the financial crisis. The rise in available capital which has triggered the search for returns on capital, has pushed private capital beyond borders as investors seek higher returns and diversification across the globe, enabled by the global nature of markets. Increasingly, the rich have also sought homes abroad, generating demand.
The real estate mega funds
Private equity funds have risen to prominence in the game, generating attractive returns in commercial real estate in recent years. This track record has made them a darling in the eyes of the beholders, giving the ability to raise hundreds or millions or more capital. Such has been the magnitude of capital going after commercial real estate.
Red tape down
Recent regulatory developments in many markets have had the effect of watering down unnecessary controls or increasing efficiency to enable capital flow in a bid to promote cross-border capital flow. The ease of capital flow has made it easier and more attractive for investors.
Apart from other micro-economic factors, these are some of the current trends and considerations for investors eyeing commercial real estate in the near term.