First drop in global real estate investment for seven years

The level of global property investment volumes has dropped for the first time in seven years, according to new research from property adviser Cushman & Wakefield.

As investors continue to lose faith as a result of growing global risks, such as the UK's decision to leave the EU and the market instability in China, investment volumes have uncharacteristically fallen off.

While around $919.7 billion (£753 billion) was invested in property – not including land for development – across the globe in the year to the end of June, this was a 5.7 per cent drop in the total amount invested over the same time period a year prior.

David Hutchings, head of European investment strategy at Cushman & Wakefield, said that the fall came after many years of sharply rising investment levels and highlighted ongoing fears regarding instability across the sector.

He said: “With risk still elevated but demand high, the question is being asked whether this is a temporary pause or has the market peaked?”

Investment volumes saw a decline across numerous regions and sectors, Mr Hutchings went on to say, adding that New York had overtaken London as the location attracting the highest volume of cross-border investment. This was as a result of declining interest for London property in light of June's Brexit vote and the continuing high prices.

While London saw overseas property investment reach $24.88 billion (£20.3 billion) this year to the end of June, New York saw $24.89 billion, taking it ahead of London for the first time since 2007. The figures from Cushman & Wakefield, which were based on Real Capital Analytics analysis, found that, in 2015, London had seen $39.4 billion (£32.3 billion) of international investment into its property sector, compared with New York’s $15.8 billion (£12.9 billion).

Mr Hutchings told the Financial Times: “We’re seeing an increased level of risk aversion compared with a year or two ago. Investors have gone back into their shell a bit. The process began last summer [2015] with the devaluation of the yuan, which made people more worried about what’s happening in China, and built up through European issues such as migration and Brexit, followed by the US elections.

“Investors are very focused on the best-quality property in the best cities, but there is only so much of that sort of property around," he added.

Related research from RCA also revealed that, while there was undoubtedly a more cautious approach being taken to international property investment across the globe, "there is limited pressure on real estate investors to divest as there is little stress in the market, the cost of borrowing remains low, loan-to-value ratios are within average levels and fundamentals in many markets are stable and strengthening."

The new cycle that the property sector appears to be on "will take longer for the cycle to pass through this time around," Cushman's Mr Hutchings went on to say. As demand has fallen, supply has been kept at a higher level, meaning that the traditional fast property cycle would be likely drawn out over a longer period of time: “That expansion of horizons has been much slower than we normally see … and meanwhile it will be some time before interest rates start to rise back towards more normal levels," he added.

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