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February 8, 2017

As the fourth quarter of 2016 came to an end cross-border investment volumes jumped by 45 percent to nearly $100 billion, comprising 49 percent of all real estate transactions. In absolute terms this volume represents the third highest quarterly level of cross-border investment since 2009. Some of the biggest increases in outbound capital flows last year came from investors in France, South Africa, and Saudi Arabia. Combined, they exported nearly $17.2 billion in capital, 17 percent of the total global cross-border volume. French outbound investment increased by 65 percent, from $6.8 billion in 2015 to $11.3 billion in 2016. Meanwhile, South African and Saudi Arabian outbound volumes jumped from $1.4 billion and $281 million in 2015 to $3.5 billion and $2.5 billion respectively in 2016.

Each country saw a major investor conduct a ‘mega-deal’ during the year, which contributed to the dramatic increase in outbound volumes. In May, 2016, Saudi Arabia based Olayan Group acquired 550 Madison Avenue, a Midtown Manhattan office tower, for $1.4 billion. Redefine Property, a South African REIT, purchased a 75 percent stake in the ‘Echo Commercial Platform’, which included 10 retail and 6 office assets located throughout Poland, for just over $1 billion. The deal was the largest recorded transaction in Central and Eastern Europe and the single largest cross-border purchase by a South African investor to date. Finally, French investors Primonial REIM and Fonciere des Murs each bought a German portfolio, for $1.1 billion and $915 million respectively. Together, these four deals accounted for about $4.4 billion, or 26 percent of the total volume of the outbound capital from France, South Africa, and Saudi Arabia in 2016.

Last year, most of the French and Saudi Arabian outbound investment targeted the developed markets of Western Europe and the US. On the other hand, an overwhelming majority of the South African outbound capital in 2016 bypassed these regions, preferring Central and Eastern Europe instead. Surprisingly, 95 percent of all South African cross-border investment was destined for CEE, with only the remaining 5 percent finding its way to Western Europe. Assets in Poland, Romania, Croatia, Serbia, and the Czech Republic, the five largest recipients of South African cross-border investment, offer higher yielding investment opportunities in alternative and potentially less volatile currencies. The scale and volume of investment by South African investors outside of the traditional investment hubs of North America and Western Europe highlights the relative value that can be found in the emerging markets of CEE, and emphasizes the importance that cross-border investment plays in global real estate markets.

While much of the story in 2016 has been about the rising influence of Chinese capital in global real estate markets, the importance of traditional, and non-traditional, sources of capital cannot be understated. As the growth and development of capital markets across the world makes real estate more accessible, investors stand to benefit from a greater number of opportunities not just in their home countries but also outside of them.

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David Green-Morgan

Global Capital Markets Research Director, JLL

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