Global real estate investment has never had it this good according to the new Jones Lang LaSalle report “Moving Further and Faster”…
2006 experienced record level volumes of global real estate investment with a 40% increase in investments in 2006 from 2005 amounting to a record $900billion total investment. The lion’s share of global real estate investment continues to be traditionally commercial real estate which accounted for $682billion in 2006, a surge of 38% over 2005, and nearly double 2003 volumes.
Cross border transactions now represent 42% of total investment volumes which has grown by 34% from 2005 levels. Inter-regional investments grew from 23% in 2005 to 29% in 2006.
The breakdown of the $900 billion global real estate investment in 2006 is as follows:
- Direct commercial real estate investments accounted for $682billion,
- Investors privatised REITs and other listed real estate owning entities totalled $48bn,
- and purchased multi-family residential investments totalled $170 billion.
According to the CEO of Jones Lang LaSalle’s International Capital Group, Tony Horrell, “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. 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.” Horrell also pointed out the collective rise of 240% (US £39billion) in Global funds invested in the US, UK & Japan.
- Global funds dominated the German market in particular, purchasing 40 percent (by value) of all German commercial property traded.
- US investors expended $18billion in the UK, France & Germany (a 51% increase).
- UK investors spent $18billion principally in Germany (an increase of a staggering 200%)
- Middle Eastern investors spent about $13billion principally in the US, UK, Germany & South Africa (a 14% increase)
- And Australian investors spent $12bn, principally in Germany and the UK
Horrell added: “Germany’s relative attractiveness has increased significantly due to a unique combination of willing domestic sellers, underweight cross-border investors, positive yield spreads and a recovering economy. Japan offers investors exposure to a recovering economy and yield spreads of almost 200bps”.
According to Padraig Brown, Global Strategy and Research Director at Jones Lang LaSalle, “Emerging markets had a strong year with over $40bn 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.”
Regional Highlights: Europe
- Europe became the world’s most active real estate investment market in 2006 with $305billion invested in the region in 2006 (a 44 % increase from 2005)
- There was a distinct shift in the UK’s long term dominance of the European market in 2006 were total transactions amounted to US$101bn (4% below 2005) with investment volumes increasing strongly in both Germany and France.
- Germany was the major global real estate story of 2006. A combination of willing domestic sellers, aggressive cross-border investors, positive yield spreads and a recovering economy resulted in transactions totalling US$62bn – growth of over 140% in constant currency terms. The German market now accounts for 20% of European volumes (up from 12%).
- The French investment market grew by 70% to $30bn or 10% of European volumes (up from 8%).
Regional Highlights: North and SouthAmerica
- Real estate investments in North and South America were US$283bn 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.
- Real estate investments in Asia in 2006 were $94bn, 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).
- Japan’s resurgence dominated the Asia Pacific market where transaction volumes surged 128% to US$52bn – 55% of total investment in the region.
- Yield spreads were guaranteed for investors in Japan due to its interest rates which remain the world’s lowest.
Read the full Jones Lang LaSalle report here. What are your thoughts about commercial real estate investments in 2007? Do you think they’ll surpass 2006 levels? The Jones Lang LaSalle report is quite optimistic about 2007.
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