In its June 2017 edition of Venue Market Spotlight (the Report), Mergermarket explored current and projected developments in the real estate M&A sector by surveying 25 global dealmakers.

Overall market activity

Of the respondents surveyed about market activity in the next 12 months, 44% predict that real estate M&A activity is on the decline, 24% believe that activity will increase "somewhat," and 24% predict that activity will remain the same. The Report posits that opinions were geographically influenced. Of the respondents with optimistic outlooks, the majority were based in either the Asia-Pacific (APAC) region or in Europe.

The majority of respondents predict that the APAC region will be the area most likely to see increased real estate M&A within the next year. This is likely because of the proposed introduction of real estate investment trusts (REITs) in countries like India and China. Europe and North America are also regions pegged to see strong M&A activity in the coming year. Experts indicate that the rationale for an active European market is the migration of investments out of the UK into other EU countries in the wake of Brexit.

Active sectors and drivers of activity

According to a quarter of respondents, office, residential, and healthcare sectors will be the most lucrative sectors of the real estate M&A market. The office and residential sectors are growth sectors and are rife with assets that can be targeted for acquisition. These types of assets are not typical investments but produce stable returns. Therefore, office and residential investments are useful for diversifying portfolios and reducing risk. Technological advancements in the healthcare industry will likely encourage real estate investments in that sector as well.

Rent hikes serve as the predominant driver of real estate M&A activity. Accordingly, increases in office space acquisitions are expected as companies relocate in attempts to cut overhead costs. Other drivers of activity include the desire for portfolio diversification and the search for investment refuges amidst economic instability.

REIT and non-REIT activity

The majority of respondents believe that the REIT market is stable. Despite competition from private equity (PE) firms and corporate investors, REITs are producing regular revenues that are safe, steady, and profitable.

Respondents predict that PE firms and corporate investors will be the most active non-REIT acquirers within the next year. With large capital holdings, PE firms are poised to purchase the assets of those scrambling to sell. Corporate investors will enter the market in their search for strategic assets that facilitate the growth of their operations.

Conclusion

The Report concludes that against the backdrop of Brexit, the volatility of the American political climate, and other common market barriers, real estate M&A remains a steadfast, stable, and attractive sector for investors across the globe.

The author would like to thank Sarah Pennington, Summer Student, for her assistance in preparing this legal update.

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