This article is from the Australian Property Journal archive
MORE than $US682 billion was invested in direct commercial real estate in 2006 — 38% up on 2005 and almost double the volumes of 2003.
Jones Lang LaSalle’s latest global real estate capital report “Moving Further and Faster” found that new sources of capital are targeting the commercial property sector, increasing competition for assets in almost all markets.
JLL’s International Capital Group chief executive Tony Horrell said globalisation of the asset class continues relentlessly with cross border transactions now representing 42% of total investment volumes and inter-regional investment reaching 29% — up from 23% in 2005.
Horrell said that in addition to direct commercial real estate investment of $US682 billion, privatised REITs and other listed real estate owning entities valued for $US48 billion, and purchased multi-family residential investments totalling $US170 billion, bringing global real estate investment to $US900 billion.
“There is currently a large overhang of investment targeting the sector with $5 of money chasing every $1 of product. Global real estate markets performed very strongly throughout 2006; it was the first year that all major developed and emerging market returns were both aligned and positive.”
Horrell added that investment was driven by increased allocations to the asset class, growth in investible stock and by the increased attention of opportunistic private equity players who identified relative value in the sector.
“These increased flows into real estate gave rise to two notable phenomena in 2006 – an increasing number of ‘mega-deals’, and continued globalisation of the asset class.”
JLL found that Australian trusts are major cross border property investors.
The largest increase in investment came from global co-mingled funds, which are now involved in transactions representing 17% of direct real estate investment globally. Global funds acquired $US83 billion (up 240%, principally in Germany, US, UK, Japan) and sold $US39 billion (up 32%).
Global funds’ purchase activity was equivalent to the entire 2006 real estate transaction volume in Japan and France combined, or almost 90% of total Asia Pacific volume.
Global funds dominated the German market, purchasing 40% (by value) of all German commercial property traded. Other significant cross border investors included US investors ($US18 billion, up 51%, principally invested in the UK, France and Germany), UK investors ($US18 billion, up 200%, principally Germany), Middle Eastern investors ($US13 billion, up 14%, principally the US, UK, Germany and South Africa) and Australian investors ($US12 billion, principally Germany and the UK).
JLL’s global strategy and research director Padraig Brown commented that a significant driver of transaction growth has been an increase in corporate real estate disposals.
He said corporate occupiers sold over $US55 billion of real estate assets during 2006 with the large corporate disposals occurring in Japan ($US14 billion) and Germany ($US12 billion) and other significant sales recorded in the US, the UK, Singapore, Finland and France.
Brown said that whereas fewer than 25% of US corporates own their real estate, the majority of continental European and Asian companies retain significant real estate assets on their balance sheets.
“The trend towards sale and leasebacks will continue to drive improved real estate liquidity and investor interest in these markets. Emerging market growth was also strong,” he added.
“Emerging markets had a strong year with over $US40 billion of transactions recorded (up 74%). Many of these markets have appeared on investor’s radars only recently and are exhibiting exhilarating rates of growth, with the Russian market expanding by over 700% during 2006 and strong deal flow in China, Turkey, Mexico and Brazil.
“Real estate fundamentals remain strong, with solid economic growth projected, vacancy rates remaining low in most major markets, and development pipelines remaining modest. Rental growth should help support recent yield compression, however investors should note that the pricing differential between prime and secondary product and markets has been lowered and ensure that risks are sufficiently factored into bid prices.”
Australian Property Journal
Regional Highlights
Asia: $US94 billion in 2006 up 41%
Cross-border investment represented 32% of total investment (up from 29% in 2005) and inter-regional investment was 22% of total investment (18% in 2005). Asia Pacific markets were dominated by a resurgent Japan where transaction volumes surged 128% to US$52 billion – 55% of total investment in the region. Investors were buoyed by an end to deflation and a slow but steady growth rate in the world’s second largest economy. Japanese interest rates remain the world’s lowest, providing investors with a healthy yield spread. Competition for assets remains intense in the market with revitalised domestic investors dominating activity and cross-border investment relegated to 20% of volume. Global, US and Australian funds are the major cross border investors. Japanese investors and corporates were the dominant vendors; however, a number of Global funds are now selling assets purchased during the recession.
Europe: $US305 billion in 2006 44% on 2005 (39%)
Europe became the world’s most active real estate investment market in 2006. Cross-border investment represented 61% of total investment (up from 53% in 2005) and inter-regional investment reached 39 % of total investment (34% in 2005). There was a distinct shift in the UK’s long term dominance of the European market in 2006 with investment volumes increasing strongly in both Germany and France.
North and South America: $US283 billion in 2006, up 31%
Cross-border investment represented 25 % of total investment (up from 16% in 2005) and inter-regional investment reached 22% of total investment (15% in 2005). Investment markets in the Americas region are overwhelmingly located in the U.S. (96% of the region’s transactions by value, and 40% of global investment). Other investment markets include Canada and the rapidly growing cross-border markets of Latin America – dominated by Mexico and Brazil.
