Toronto remains popular choice for global CRE investors

Among the top 30 cities favoured by investors for commercial real estate, Toronto ranks among the top 30 cities. It has help this position for every year in the past decade. However, Canada’s only city in the annual JLL rankings has slipped down the list from 14th to 19th, through the duration of 2017 to 2018. Asia Pacific cities are increasing in popularity.

London is still being favoured in the commercial real estate world, despite Brexit. The global rankings show that investors prefer cities they are familiar with, that have a well-established investment market, and high levels of transparency. New York slipped back in 2017 with Los Angeles becoming North America’s top city.

“In a year when investors have had to deal with increasing populism, protectionism and political uncertainty, the appeal of real estate as an asset class has continued to increase,” commented Richard Bloxam, Global Head of Capital Markets at JLL.

Investors remain focused on gateway cities, despite tight pricing. Many are looking at alternatives or emerging locations, as well as varying real estate properties within these cities, rather than exploring other less familiar cities.

Total volumes in 2018 were $733 billion, up 4% from 2017, the best annual performance in a decade.

Cross-border purchases accounted for 31% of activity in 2018, close to the 10-year average, suggesting investors still have appetite to buy outside their own markets.

“A notable trend is that half of these established gateway cities are in Asia Pacific. Increasing transparency in these markets is encouraging more investment, moving these cities even higher up the rankings in 2019 and beyond,” Bloxham said.

Looking ahead for 2019
Over the next year, JLL is forecasting a pull-back by some investors due to caution and selectivity.

That could mean a 5-10% reduction on 2018’s volumes although real estate remains an attractive investment compared to other asset classes with strong fundamentals.

Yields are now at historic lows in most markets across the globe. A sharp correction is unlikely, as there is still a significant weight of capital looking to invest in real estate, and corporate occupier market fundamentals across many markets are positive.

Among other key factors in JLL’s forecast:

  • The institutional real estate universe will continue to expand, driven by factors such as low volatility, diversification benefits, long-term income and an attractive pricing premium to core sectors. Asset classes such as student housing, senior living and multi-family have continued to attract more institutional money in 2018 and this is likely to continue in 2019.
  • Industrial now accounts for 17% of all investment, up from 10% in 2009. In contrast, the retail sector has seen less activity as investors adjust their investment approach to reflect changing consumer behavior. In gateway cities, the office sector tends to account for a higher proportion of investment volumes—68% in 2018, compared to 51% in global volumes.
  • The top 30 will continue to be dominated by the gateway cities in 2019. However, at the edges, investors will consider a widening range of cities in their strategies. Reflecting real estate investors’ risk appetite, secondary cities in established transparent markets, such as Osaka and Atlanta, are likely to attract more attention, as opposed to moving into entirely new countries.

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