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July 7, 2016

Real estate investors have hit the pause button as global political pressures – stemming largely from the UK and the United States – weigh on their minds.

New quarterly figures from JLL show an 8 percent year-on-year decline in global real estate transaction volumes in Q2 2016, with activity totalling US$155 billion. This brings half year volumes to US$292 billion, a 10 percent decline on the first six months of 2015.

As a result of weaker investor activity over the first six months of the year, and with a further decline expected over the second half, JLL predicts that full year global transaction volumes in 2016 will be between US$600 to 630 billion – 10 to 15 percent lower than the US$704 billion recorded in 2015.

“2016 looks likely to be a year that politics will play a major role in determining investor sentiment and, subsequently, global market activity,” says David Green Morgan, JLL Research Director for Global Capital Markets.

“While this is certainly not a repeat of 2008 – rather an adjustment to the strong growth we’ve seen in previous years – we do see an unsettled picture in terms of investor sentiment; with many finding reasons to pause their decision making.

“We have already seen how markets have reacted to the unexpected referendum vote in the UK and with U.S. elections around the corner we are likely to see continued uncertainty for the rest of the year.”

Despite ongoing headwinds, some bright spots of activity remain, and a full-year total of approximately US$600 billion will still place 2016 as the fifth most active year for real estate transactions since JLL began recording global volumes in 2003.

Green Morgan adds: “Despite the political situation in the UK, which continues to adjust in the aftermath of Brexit, the contagion is not widespread in Continental Europe and activity remains positive in France, the Nordics and CEE markets.”

“Given the rate of growth in transactional volumes over the last few years and its subsequent effect on pricing, maybe a pause was only to be expected. There remains abundant capital looking to be deployed within real estate but there remains challenges associated with deploying that capital without driving prices to unsustainable levels.”

Regional overview

The Americas
Volumes in The Americas have maintained a downward trend, coming in 12 percent lower than Q1 2015 at US$69 billion, which leaves activity over the first half of 2016 15 percent lower than a year ago.  While much of the regional performance is driven by the slowdown in the United States, Canadian volumes have recovered after a slow first quarter with a 15 percent rise on the first six months of 2015.  Elsewhere, in Latin America, investment activity is well behind 2015, despite several big-ticket hotel and retail portfolio deals in Chile over the quarter.

EMEA
European activity has, perhaps surprisingly, bucked the downward trend in the second quarter with volumes hitting US$57 billion, which is in line with the second quarter of 2015 in both U.S. Dollar and Euro terms.  However, given the weak start to the year, overall H1 volumes are five percent lower than 2015.  While much of the weakness in activity is emanating from the UK which has reported a 28 percent decline over the first half, transaction volumes in the second quarter were actually higher than the first.  Nonetheless, there is some positive activity across the continent with French volumes 16 percent higher than H1 2015 while the Nordics recorded some strong results – activity in Sweden is up by 13 percent in the first half of the year. Across Central and Eastern Europe (CEE), volumes grew over the first six months of 2016 with Poland, in particular seeing deal volumes double on the same time last year. Meanwhile, investment activity in Germany is down 4 percent from a very strong 2015.

Asia Pacific
Asia Pacific, which supported global activity in the first quarter, has felt the impact of negative sentiment in the rest of the world and investment activity has decreased over the second quarter, coming in at US$28 billion – 8 percent down on a year ago. This is largely due to a slowdown in China and Japan where volumes came in at 13 percent and 12 percent lower respectively.  Activity in Australia remained flat as tight supply restricts activity while Singapore reported an uptick on H1 2015 volumes, owing to the US$2.45 billion Asia Square office sale in June . Quarter-on-quarter, most markets in the region are down on the first half of 2015, leaving volumes 4 percent lower year-on-year.

David Green-Morgan
Global Capital Markets Research Director

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