×
Triangles background

OUR COMPANY AFFILIATES

CBRE GROUP

CBRE Group, Inc. is the world’s largest commercial real estate services and investment firm, with 2018 revenues of $21.3 billion and more than 90,000 employees (excluding affiliate offices). CBRE has been included in the Fortune 500 since 2008, ranking #146 in 2019. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services.

INVESTMENT SERVICES

CBRE Global Investors, combined with CBRE Clarion Securities and CBRE Caledon, is one of the world’s leading real asset investment managers with $106 billion in assets under management.

Built up over more than 40 years, our unparalleled platform is focused on real assets, giving our institutional clients access to real estate and infrastructure in the Americas, Europe and Asia Pacific. Our clients benefit from a complete range of investment solutions including equity and debt, direct and indirect, and listed and unlisted strategies.

Trammell Crow Company, founded in Dallas, Texas in 1948, is one of the nation’s oldest and most prolific developers of, and investors in, commercial real estate.The CBRE Global Investors and Trammell Crow Company platforms make up the Real Estate Investments division of CBRE Group.

The Real Estate Investments division is led by
Danny Queenan, Global CEO, Real Estate Investments.

BLOGS

Regularly released content on the state of the real estate and infrastructure industry are produced by our subject matter experts and shared on their blogs. A selection of them can be found below.

Triangles background

Viewed 412 times

EUROPE WATCH

Despite the Halloween deadline, the most ghoulish of Brexit outcomes has been avoided again. However, the possibility of a ‘no deal’ Brexit is not yet dead and buried, but it has been cut back sharply by recent political events. The underlying trend for the UK economy is one of sluggish (but not zombie-like) growth. At the same time, with little in the way of new supply on the horizon and the prospect of higher interest rates being pushed back further, interesting opportunities have arisen. There is still a significant divergence between sector performance, with capital falls in retail dragging down the All Property aggregate figures. Strong investor demand for alternatives is a theme in the UK, as elsewhere in Europe. Much of this is driven by the search for secure, long income and we are also seeing increased activity in other areas, such as residential. In the commercial sector, outside of retail, occupier demand is generally robust and, in the case of Central London offices, has strengthened in 2019. In this month’s Europe Watch we look at some of the bright spots in the UK market, even as the UK economy continues to be haunted by political uncertainty.

STRONGER POUND SIGNALS RECEDING ‘NO DEAL’ RISK

The UK economy contracted in Q2 2019 prompting fears that the UK economy could have slipped into recession over the summer, but recent data points to growth resuming in Q3. Political uncertainty is weighing on business investment and the slowing global economy is providing a tough environment for exporters. This means prospects for the economy over the coming quarters will be determined by the mood of consumers. In the current environment, monthly and quarterly data is likely to remain volatile. The underlying trend is one of sluggish growth, which we expect to continue into 2020, before likely acceleration from 2021. This outlook is underpinned by the assumption that there will be an orderly Brexit, following a final extension to the Article 50 deadline into 2020. Ever since the referendum in 2016, movements in the exchange rate have been the clearest indicator of changing perception of ‘no deal’ risks, and the increasing chance of a deal being reached can be seen in the recent appreciation of Sterling.

NOVEMBER 2019

3,604.41

1.0%

Euro Stoxx 50

0.00%

ECB Policy Rate

-0.400%

17 bps

10-yr. German Bond

$60.23

1.7%

Brent Crude

Data points through end of October 2019. Change represents month-over-month change.

EXCHANGE RATES
PRINCIPAL CONTRIBUTORS:
 
David Inskip
Maria Wiklund
STRONG INVESTOR DEMAND FOR THE ALTERNATIVE SECTORS

While overall property investment volumes have eased in 2019, investor demand for the alternative sectors has been robust. With disruption in the retail sector ongoing and the industrial sector showing signs of cooling, investors are increasingly looking outside of the mainstream sectors for opportunities. Since 2009, we have seen investment in the alternative sectors steadily increase and it is now accounting for circa 40% of the total transaction volumes in the UK. Investors are increasingly focussed on structural trends benefitting certain alternative asset types, offering diversification from the more cyclical sectors of the property market. This is a trend visible not only in the UK but across Europe.

INVESTMENT IN ‘OTHER’ SECTOR,
% OF TOTAL TRANSACTION VOLUME

Source: Property Data

LONG INCOME OUTPERFORMING MAINSTREAM REAL ESTATE

Investors targeting secure, long income streams has been another factor supporting investment volumes in the alternative sectors. As observed since the Brexit referendum vote in 2016, and on the back of further reducing LT interest rates, long ”bond-like” income assets have outperformed commercial property. Over the 12 months to June 2019, the CBRE Long Income Index saw a total return of 8.2%, far surpassing the 3.5% return from CBRE’s mainstream commercial property index. While the current economic uncertainty persists and interest rates remain at current low levels, we would expect fierce competition amongst investors to persevere for assets providing long income. This will likely mean another year of outperformance for the sector in 2019. Ground rents continue to deliver the highest total returns, with value growth the weakest in the area of the market closest to mainstream real estate (Sale & Leaseback).

LONG INCOME & COMMERCIAL PROPERTY
TOTAL RETURNS, % Y/Y.

Sources: CBRE, MSCI

LONDON RESIDENTIAL RENTS ACCELERATING

Since the Brexit referendum vote, the London residential market has endured a period of disruption. House prices have recorded falls and rental growth has decelerated, even entering negative territory in 2018. Since the beginning of 2019, London’s rental market has started to shift to a new phase of adjustment and rental growth has resumed. Low returns and tax changes are driving ‘buy-to-let’ landlords from the market, while rising wages and low unemployment are supporting tenant demand. As a result, fresh imbalances between rental supply and demand are building. The RICS landlord instructions balance for London decreased to -18% in August indicating the fall in homes coming up for rent. This, in combination with the tenant demand balance which was at +27% for the same month, suggest that London rental prices will continue to increase and growth will accelerate further.

LONDON RENT GROWTH

Source: Office for National Statistics

IMPROVEMENT IN CENTRAL LONDON OFFICE OCCUPIER MARKET

Bright spots are not limited to the alternative sectors, however. Occupiers have started to regain trust in Central London again after a period of caution since the referendum. Central London is now seeing more space being occupied than vacated in the market, which has not happened consistently since 2016. Previously, take-up was driven primarily by lease events or consolidations, but this changed at the end of 2018. The effect can be observed in the net absorption that has been improving since the beginning of the year. In fact, Q2 2019 was the strongest quarter in terms of net absorption since 2014. Although, this will not benefit all office assets equally, with tenant demand focussed on well specified space in accessible amenity-rich locations. As a result, prime rental growth has moved firmly into positive territory in the first half of 2019.

CENTRAL LONDON NET ABSORPTION &
PRIME RENT GROWTH

Source: CBRE

Related Content

Please note that the content of this report is for informational purposes only and should not be viewed as investment advice or an offer or solicitation. Any opinions are solely those of the Strategy & Research Team of CBRE Global Investors and are subject to change without notice, and may not be consistent with market trends or future events. This research is based on current public information that we consider reliable, but we do not represent it as accurate, updated or complete, and it should not be relied on as such.

Copyright © 2019, CBRE Global Investors, LLC. All rights reserved.