The International Monetary Fund recently released an updated World Economic Outlook report that outlines the GDP growth of various regions and countries around the world for 2014 and estimates for performance in 2015. According to the report, GDP growth has decelerated in China and is expected to further decelerate in 2015. Japan was completely flat for 2014. Latin America growth was cut by more than half. Russia’s growth was also cut in half and is expected to contract by 3% in 2015.
It is apparent that the data supports the theme we heard throughout 2014 - that economic growth in much of the world has slowed. No coincidence, this report coincides with recent monetary policy actions in various countries aimed at stimulating more growth in the near term including the Eurozone Japan, China, Australia and Israel. What does this mean for commercial real estate? Well, with more money being created by the central banks, some of that money will be targeted at real estate and right now, there isn’t a more stable market to park your money than in the US. For 2015, we are already seeing this play out. According to Real Capital Analytics data, investment in office in the US by foreign groups is currently 21% of total sales volume with the Washington, DC Metro area, New York Metro, Houston and San Francisco leading the way (69%, 42%, 43%, and 17% foreign investment as a percent of total sales, respectively as of mid-March). Even more telling is the fact that cross border firms are now making major plays in riskier suburban and secondary markets such as Phoenix, Austin, and Raleigh. It will be interesting to see whether new competition from foreign capital with possibly lower expectation for yield will drive down cap rates and drive up pricing for the best product in the secondary markets the way we have seen this take place in the DC Market.
By: Nathan Edwards
Director of Research, DTZ - Washington, D.C.
Email Nathan: Nathan.Edwards@dtz.com
Contributor: Joe Wood, Research Analyst, DTZ
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