As highlighted in Savills Impacts research programme, commercial property, although the world’s most heavily invested real estate asset class, is less than an eighth of the size of the value of all the planet’s residential real estate, totalling US $33.3 trillion in 2017.

Compared with other asset values, over the course of last year equities and gold grew much faster in value than property. Commercial property lagged behind the growth in securitised debt and residential property, but faster than agricultural land in 2017. This is due to capital growth slowing following several years of strong investment and yield compression.

While you may assume that the size of a region’s commercial real estate market ought to be roughly be in sync with its population size, the share of commercial real estate by world region is more closely related to GDP, as the graph below shows. In 2017, commercial real estate grew at exactly the same rate as global GDP at around 3 per cent.

The relationship between world GDP share and real estate value share

North America is home to the most valuable commercial real estate market, estimated at $9.5 trillion or 29 per cent of all global commercial property value. This large, mature market saw 31 per cent (worth $8.1 trillion) of all global big-ticket real estate transactions in 2017. After the US, the next most valuable national commercial real estate markets are found in China ($3.6 trillion), Japan ($2.8 trillion), Germany ($1.7 trillion) and the UK ($1.7 trillion).

How does real estate growth compare to other asset classes?

Many major stock indexes hit record highs in 2017, resulting in 22 per cent growth in the value of global equities over the year. When it comes to real estate, residential saw the strongest global value growth at 8 per cent. 

Real estate has come into its own as global investors have searched for income in a low interest rate environment. Rising wealth in emerging economies means there is more capital at large and real estate is viewed as a safe place for it. Investor motives remain, as they always have, a mixture of ‘wealth storage’, capital appreciation and income return.

All this means more money is seeking a home. But, increasingly, the income produced by real estate assets and the potential for rental growth is of increasing interest to investors as the yields on fixed-income assets have compressed.

We expect that real estate values, especially in developed countries where interest rates have bottomed out, will increasingly grow in line with rents. This means that in future we can expect to see the highest value growth in emerging economies while the established markets are much more likely to grow in line with GDP.

Further information

Read more Impacts: The future of global real estate