What factors influence the increase in investment activity
The commercial real estate market has seen an increase in investment activity. The number of mergers and acquisitions is growing. In the second half of last year, their volume amounted to 2.2 trillion dollars. Such an indicator was a record for this period. Analysts believe that increased interest in M&A transactions is associated with an increase in investment in commercial real estate. The latter factor is contributed by the optimistic moods in the market.
Despite the impact of the pandemic, annual transaction volume in 2020 was down only 7% from 2019. In 2021, growth continued on the back of good economic activity. Debt markets and the equity segment showed excellent momentum, with especially progress among technology companies, the telecom sector and the media.
Investors are primarily interested in the real estate segment where the inflow of private capital has been increasing lately. Thanks to this, prices are recovering and liquidity is increasing.
If at the beginning of 2020 due to the pandemic there was a decrease in the volume of M&A deals, then by the end of the year the activity has increased significantly and remained throughout 2021. In addition, analysts expect this situation to continue until the new economic cycle. The market now offers excellent opportunities primarily in the industrial real estate and multifamily housing sectors. Specialty segments are also expanding their offerings, this includes life sciences and data centers. The housing and leisure sectors are recovering at a good pace.
Analysts note that the increase in M&A deals is an excellent sign for the growth of investment in commercial real estate.
It should be noted that most M&As are conducted when profits are high and cost of capital is low. The higher the profitability of commercial properties, the more investors who are interested in developing this segment. Market stability and low cost contribute to the demand for assets. Although 10-year Treasury bond yields have risen significantly, money supply has shrunk to record levels. In addition, commercial loan rates will not be revised in the near future and will remain at low levels.
The hotel and retail sectors have been hit hard by the pandemic and prices have not yet recovered to pre-crisis levels. Analysts predict an increase in mergers in these segments, especially on those assets where the share price is lower than the underlying value of the object.
Increased M&A activity is boosting investment in the real estate market, making it recover and grow.