This article is from the Australian Property Journal archive
Cashed up Unites States and Australian investors were the most active players in direct commercial real estate investments in 2005, according to a new report from Jones Lang LaSalle.
The latest JLL “Global Real Estate Capital – More Markets, More Competition” report found investors are increasingly turning to an international property portfolio to achieve higher returns and diversification.
Since 2003, investment in direct commercial real estate has grown steadily from $US354 billion to $US393 billion in 2004 to $US475 billion in 2005.
According to the report, global sources of funds dominated inter-regional investment in 2005, accounting for approximately $US32.9 billion on the buy side and $US28.9 billion on the sell side.
The report found US and Australian investors each accounted for 14% of inter-regional purchases, followed by Middle Eastern investors at 13%, who spent $US9.9 billion to buy significant volumes in both Europe and South America.
Globally, cross-border investment, as a proportion of total investment, increased from 29% in 2004 to 35% in 2005, reaching $US164 billion.
In 2005, North America remained the largest investment destination with $US21.8 billion of purchase activity and $US14.0 billion of sales activity, followed by the United Kingdom, Germany, France and Sweden.
The Asia Pacific region also witnessed the strongest year on year transaction volume growth at nearly 56%, with China emerging as the most popular destination for inter-regional capital, recording $US2.3 billion of purchases.
Europe accounted for over two thirds of volume transacted, attracting 60% of inter-regional purchase volumes.
At the end of 2005, inter-regional investment transaction volumes rocketed by 40% and now account for almost a quarter of total global transaction volumes.
JLL’s International Capital Group chief executive Tony Horrell said as allocations to international real-estate grow, opportunistic capital is increasingly targeting the shores of recovering and emerging markets.
“Germany’s economic recovery and real estate market re-emergence continued in 2005; we saw inter-regional investors make $10.8 billion of purchases and $6.1 billion of sales.
“Unlike other recovering and re-emerging markets, Germany offers cross-border investors a significant stock of opportunities; retail in particular is proving popular as it offers high-yields, potential rental growth and significant asset management opportunities,” he added.
Meanwhile, in Asia, investment volumes in Japan were 28% higher over 2004 levels, with the majority of investments made by Japanese listed, unlisted and institutional funds.
Horrell said similarly sustained economic recovery and the end of deflation in Japan has encouraged real estate investors to return to the Japanese market which is driving yields down and prices up.
“With Japanese corporate earnings rebounding, unemployment and office vacancy rates declining; the scene is set for a strong recovery in the occupier market. Japan is a market to watch in 2006,” he added.
According to the report, the purchase activity was dominated by unlisted funds, increasing their purchases by 73% over 2004 levels while increasing their share of inter-regional purchase activity by 55%.
Institutions were significantly more active in 2005, however were overall net sellers.
In 2005, inter-regional investment saw relatively little change in the overall distribution of capital between property sectors. Office transactions remained the dominant sector, accounting for approximately 56% of total transactions, retail 26%, industrial 13% and hotels 5%.
JLL estimates that in Europe and North America over 10% of investor owned real estate, both public and private, changed hands, offering unprecedented levels of liquidity.
Looking ahead, Horrell said the capital flowing into real estate will continue to outweigh suitable opportunities as real-estate remains an attractive asset class, relative to equities and bonds.
“Key themes we predict going forward include a competitive and structured debt market driving weight of capital and the globalisation of REIT markets and pooled asset vehicles, both of which will accelerate the globalisation of direct real estate investment,” he concluded.
By Adam Parsons
