Cross-border investment in real estate appears to be more than weathering the pandemic.

Knight Frank's 6th annual Active Capital Report published this week has forecast good times ahead for the global real estate market as “green premiums” take off and investor confidence in the office, retail and hotel sectors returns.

The global property firm has ranked the US, the UK, Germany, France, and the Netherlands as the top countries for cross-border real estate investment in 2022, with Europe, Middle East and Africa destinations on track to increase inflow by 50 per cent, and inflows into Asia-Pacific countries rising around 30 per cent.

Those who were writing off the office sector at the height of the pandemic are being assured that the sector is tipped to occupy more than half of all major cross-border transactions, Knight Frank's analysis reveals, bolstered by income-seeking investors.

Residential real estate has also stayed bouyant, with the sector expecting the second largest inflows in 2022, no doubt dominated by ongoing conversations among families about where and how they want to live post the pandemic.

Fund managers and private equity will continue driving the industrials and logistics sector in 2022, with locations including the US, the UK, Germany, France and the Netherlands singled out as prime markets, along with Spain, Poland and Australia.

ESG awakens
Unsurprisingly, ESG is a prevailing theme of this year's forecasting and the rising expectations of investors.

Real Estate Investment Trusts or REITs are a good example of vehicles lending themselves to the social and environmental concerns gaining importance in real estate portfolios.

Google gave the US REITs market a boost last week when the tech giant announced a $2.1 billion investment in a New York City office building. Many of the big techs have been at the vanguard of designing "passive" optimal working environments for the next-generation workforce.

REITs, as publicly traded companies that own income-producing real estate, are being tailored to fit investors' concerns for solving some of the sector's biggest challenges, such as the chronic shortfall in social housing, healthcare facilities for aging societies, and the overall need to dramatically increase green building stock.

The green premium
Knight Frank research shows that London, Shanghai, New York, Paris, and Washington DC are the world’s greenest cities for real estate, and that London, Melbourne, and Sydney in particular are reaping price premiums for their green-rated office stock.

As green buildings become a priority for investors and are demanded by premium tenants, results show that prime Central London buildings with a BREEAM1 “excellent” rating gained a 10.5 per cent price premium over their unrated equivalents. Those with a “very good” rating gained a 10.1 per cent premium. In Melbourne and Sydney that premium shot up to 17.9 per cent for its five-star graded stock.  

What are "nice to have" green options now are likely to become industry mandates as forensic auditing kicks in to meet net-zero emissions goals. The built environment is firmly in the crosshairs as one of the biggest energy consumers. High-polluting industries such as cement manufacture are also under the kosh.

“Real estate has a critical part to play in the climate emergency and this is having significant ramifications across every element of our marketplace," Knight Frank’s chief strategy officer and head of global capital markets research, Anthony Duggan, said.

“Our analysis of the price premium on green-rated buildings should help the sector to take a big step forward in quantifying ESG investment decisions and further ingraining sustainability into real estate strategies,” he said.