Reasons Why Investors Are Moving Capital Into Commercial Real Estate In Emerging Markets

Posted by Amar Yadav
April 28, 2017

Self-Published

There is a range of factors that contribute in stimulating commercial real estate investment in emerging markets such as India. Strong economic prospects, shifts in policy level, and increasing employment bases are together responsible for making this happen.

Below mentioned are five reasons that indicate why investment into commercial real estate in emerging markets is increasing:

  1. Most dynamic cities in the world are considered to be the emerging markets. JLL, a global real estate firm recently published a City Momentum Index, which revealed that cities from countries like India, China, and Vietnam are a few of the most active cities in the world. This Momentum Index ranks cities on a range of parameters such as absorbing a growing population, integrating with global supply chain, ability to initiate innovation, etc.
  2. Real Estate Investment Trusts (REITs) play an active role in ensuring inflation adjusted returns in emerging economies. Many emerging Markets like Mexico, Malaysia, and South Africa have accepted REITs for making channels for lucrative real estate investment. Economies like India, China, and Kenya are also taking measures to implement REITs and related techniques.
  3. Emerging economies have shown tremendous growth in the expansion of job markets that has helped in reducing unemployment and improving wage growth. The Increase in employment affects the demand for commercial real estate. Also, the impressive growth rates have higher the standard of living in people. Such economies are increasingly driving the global growth and wealth creation.
  4. Powerful economic fundamentals have contributed in increased acquisition of commercial spaces, which has led to hike in rental and capital values. According to JLL, an increase in the leasing activities has been witnessed in the major emerging cities such as Beijing, Hanoi, Chennai, Bangalore, New Delhi, Buenos Aires, Manila, and many more. Promises of better return have made these emerging economies favorable for regional and international private equity (PE) players. Recent research suggested that the volume of private equity in India’s real estate has more than doubled in the last two years.
  5. Major geopolitical events such as anticipated federal fund rate increase in the US, potential spillover from BREXIT, and uncertainty over policy formulation under Trump administration create an impact on emerging economies. Presently, the outlook of emerging economies looks steady and strong. Economic superpowers like India and China are expected to generate a good GDP growth this year. Other emerging economies like Russia, Brazil, Argentina, and Nigeria are also expected to showcase economic recovery. In addition, the prices of oil barrels are still within US$60, which may benefit key emerging economies such as India and China, as they are major importers of oil. As of now, strong economic outlook will keep driving the demand for commercial assets in these emerging economies all over the world. On the other hand, the weaker emerging market currencies are further adding value to the commercial sector, making this asset class a lucrative and affordable choice for international buyers.

In fact, this momentum may also create a positive effect on residential properties. The people investing in these commercial properties may want a residence to live in. Therefore, the demand for residential properties in key cities may witness a rise. People may be interested in buying luxurious apartments in metros like Chennai, Hyderabad, Bangalore, and Delhi.

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