Opportunity knocks for first-movers as real estate executives sense more stable foundation for deal making
New York, 1 August 2013
Real estate executives are far more confident about the global economy than they were just six months ago, according to EY’s Global Capital Confidence Barometer for Real Estate, Hospitality and Construction. The report, which surveyed 117 senior executives from real estate, hospitality and construction (RHC) companies around the world, found there is increased optimism about the global economy. Eight-five percent of those surveyed said the global economy is improving or stable – a 20% increase in the six months between October 2012 and April 2013.
- EY’s global survey shows vast majority of senior real estate, hospitality and construction executives see global economy on the upswing, positioning industry for growth
Respondents were also more positive about economic growth (57% vs. 26% in October 2012); employment growth (48% vs. 28%), corporate earnings (49% vs. 22%) and, most dramatically, credit availability (51% vs. 18%). This last fundamental is typically critical to real estate because of the industry’s dependence on financing.
EY Global Hospitality Leader Michael Fishbin says, “The greater sense of optimism evident in our survey, though still somewhat cautious, strongly suggests a more stable foundation for deal making in which there are likely to be attractive opportunities for first-movers in most sectors. This optimism is buoyed in part by a consensus that global economic fundamentals are improving.”
Valuations are expected to rise
The survey indicates that the valuation gap between real estate buyers and sellers has narrowed quite dramatically and it is expected to shrink further in the next 12 months, suggesting greater deal velocity is possible later this year. Expectations for higher deal valuations are at the highest level they have been in recent years.
Michael Fishbin continues, “Forty-six percent of respondents expect prices to rise in the next year, compared to 37% in April 2012. With pricing clearly believed to be on an upward path, buyers might have a limited amount of time to lock in the best deals.”
Smaller deals to dominate
Despite the optimistic outlook, smaller deals are expected to dominate real estate transactions over the next 12 months. Sixty-four percent of those responding expect the most common deal size over the next year to be in the US$51m to US$500m range, which looks to continue an ongoing trend. Between January and April this year, 97% of all single-asset deals completed in the commercial real estate sector, and 100% of the single-asset deals completed in the hotel sector, were under US$500m.
Emerging markets prominent
Investment destinations continue to evolve as companies challenge their growth strategies and underlying risk tolerance. Of the top five markets identified for capital deployment, four – India, China, Qatar and Chile – are emerging markets exhibiting strong growth potential and higher risk. The fifth market – Canada – witnessed solid economic growth in the last few years and weathered the global financial crisis better than most. Notably absent from the preferred list of markets are European nations. Germany is the highest ranked – at #15. This suggests ongoing concern among real estate investors in the overall stability and short-term trajectory of the Eurozone economies.
Notes to Editors
To download the full version of this report, visit http://www.ey.com/realestate.
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