World commercial property hits a high

World commercial property hits a high

The international commercial property market attracted record levels of investment last year, with $US643 billion ($814 billion) in stock changing hands – a jump of 33 per cent on the previous year.

In spite of widespread predictions that the global boom is unsustainable, institutions and private investors have continued to pour money into shopping centres, offices and industrial parks.
Europe and Asia saw strong growth last year, with volumes up 50 per cent and 48 per cent respectively, according to a survey by real estate consultants Cushman & Wakefield.

The trend comes amid a surge in both property prices and deal volumes that can be traced back to the stock market collapse of six years ago.

In the wake of the falls in equity prices, many pension funds and other investors earmarked more cash for alternative asset classes, including property as well as commodities, private equity and infrastructure.

As prices were forced upwards, pushing up total returns, ever more buyers have entered the market.

Many observers talk about a “grass is greener” syndrome where Asians, Americans and Europeans place money abroad in the hope of better returns.

This cross-border investment represents 29 per cent of the total investment market, up from 25 per cent in 2005, according to Cushman & Wakefield. This trend is strongest in Europe, where more than half of deals are by buyers from other countries.

David Hutchings, European head of research for the company, said the flow of new money was still “escalating”, as investors were drawn by the sector’s recent strong returns.

“Despite most markets entering a period of potentially slower economic growth, indicators point to continuing high investment volumes through this year,” he predicted.

Yields – or “cap rates” in the US – that show the proportion of annual rent against the cost of a building, have fallen to new lows. Some office blocks in the world’s most glamorous cities are selling at yields of less than 4.5 per cent – often below the cost of borrowing.

Source: The Australian | FT Business