According to Jones Lang LaSalle's New Report 'Global Real Estate Capital - More Markets, More Competition'.
MIPIM - Jones Lang LaSalle's latest global real estate capital report, released today at MIPIM, records global direct commercial real estate investment of USD 475bn (euro 383bn) in 2005, up 21 percent on 2004. North America remained the largest investment destination (nearly half of total transaction volumes) whilst Asia Pacific witnessed the strongest year on year transaction volume growth at nearly 56 percent. Cross-border investment (as a proportion of total investment) increased from 29 percent in 2004 to 35 percent in 2005, reaching USD164bn (euro 132bn), with Europe accounting for over two thirds of volume transacted.
Inter-regional investment transaction volumes rocketed by 40 percent and now account for almost a quarter of total global transaction volumes. This impacted most on Europe which attracted 60 percent of inter-regional purchase volumes, whilst the US was the most popular country for inter-regional investment followed by the UK, Germany, France and Sweden.
Global sources of funds dominated inter-regional investment in 2005, accounting for approximately USD 32.9bn (euro 26.5bn) on the buy side and USD 28.9bn (euro 23.3bn) on the sell side, an indication that these investors are actively managing their international property portfolios to achieve higher returns and international diversification. Whilst US and Australian investors each accounted for 14 percent of inter-regional purchases, Middle Eastern investors also remained a major source of inter-regional capital (USD 9.9bn, euro 8.0bn), purchasing significant volumes in both Europe and South America and accounting for 13 percent of inter-regional purchases.
Tony Horrell, CEO of Jones Lang LaSalle's International Capital Group, commented: "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 USD 10.8bn (euro 8.7bn) of purchases and USD 6.1bn (euro 4.9bn) 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 continued: "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. Investment volumes were up by 28 percent over 2004 levels, with the majority of investments made by Japanese listed, unlisted and institutional funds. 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."
Report highlights:
- France - Continued strength in attracting inter-regional capital, recording USD 7.2bn (euro 5.8bn) of purchases and USD 5.0bn (euro 4.0bn) of sales for positive net inflows of approximately USD 2.2bn (euro 1.8bn). Global investors dominated inter-regional purchase activity, with the Paris office market (one of the largest in Europe) being a favoured destination for international money due to its high transparency and good rental growth prospects.
- The UK - At an inter-regional level, the UK was dominated by Global, Middle Eastern and US sources of funds although intra-regional sources of capital were also significant, namely Irish at USD 7.6bn (euro 1bn) and German at USD 4.3bn (euro 3.5bn).
- The US - USD 21.8bn (euro 17.6bn) of purchase activity was recorded in 2005 and USD 14.0bn (euro 11.3bn) of sales activity, recording a positive net inflow of USD 7.8bn (euro 6.3bn).
- Latin America - 2005 was a strong year for cross-border flows into Latin America, in particular Mexico as it increasingly becomes a target for inter-regional capital, recording USD 2bn (euro 1.6bn) of purchases and USD.08bn (euro 0.6bn) of sales.
- China - In 2005, China emerged as an increasingly popular destination for inter-regional capital, recording USD 2.3bn (euro 1.9bn) of purchases. Although inter-regional transaction volumes in China are currently far smaller than the larger markets of UK, USA, Germany and France, the potential proportion of investible stock will continue to grow with rapid economic expansion, relaxed foreign investment laws and improving transparency. China is set to be another strong growth market in 2006.
- Investor types - Inter-regional purchase activity in 2005 was overwhelmingly dominated by unlisted and listed funds and institutions. Unlisted funds were the largest inter-regional purchasers in 2005 - increasing their purchases by 73 percent over 2004 levels. Increasing their share of inter-regional purchase activity by 55 percent. Institutions were significantly more active in 2005, however were overall net sellers.
- Key market sectors - 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 percent of total transactions, retail 26 percent, industrial 13 percent and hotels 5 percent.
- Liquidity - In Europe and North America Jones Lang LaSalle estimates over 10 percent of investor owned real estate (both public and private) changed hands in 2005, offering unprecedented levels of liquidity.
Looking ahead, Tony Horrell concluded: "We expect capital flowing into real estate to 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."
Notes to Editors
1. Cross-border activity is classified as inter-regional (either or both purchaser and vendor originate from outside the region in which the transaction occurs) or intra-regional (either or both purchaser and vendor originate from outside the country in which the transactions occurred; however neither is from outside the region).
2. 'Global sources of funds' can be defined as an investment fund that raises capital from multiple countries, i.e. not identifiable to a single country, even though the sponsor of the fund may be domiciled in a specific country.
3. Methodology
Previously reported transaction volumes were revised in 2005 to exclude the investment grade residential sector. The report now focuses on the commercial real estate sectors popular with inter-regional investors, and excludes multi-family residential real estate.
Annual figures, like-for-like comparison:
Total Cross Border
2003 USD 354bn (euro 285bn) USD 90bn (euro 73bn)
2004 USD 393bn (euro 317bn) (+11 percent) USD 114bn (euro 92bn)(+26 percent)
2005 USD 475bn (euro 383bn) (+21 percent) USD 164bn (euro 132bn) (+43 percent)
4. Exchange rate used: euro 1 = USD 1.24 (average daily rate during 2005)
About Jones Lang LaSalle
Jones Lang LaSalle (NYSE: JLL) has more than 100 offices worldwide and operates in more than 430 cities in 50 countries. With 2005 revenues of approximately USD 1.4 billion, the company provides comprehensive integrated real estate and investment management expertise on a local, regional and global level to owner, occupier and investor clients. Jones Lang LaSalle is an industry leader in property and corporate facility management services, with a portfolio of 923 million square feet worldwide. In 2005, the firmcompleted capital markets sales and acquisitions, debt financings, and equity placements on assets and portfolios valued at USD 43 billion. LaSalle Investment Management, the company's investment management business, is one of the world's largest and most diverse real estate money management firms, with approximately USD 30 billion of assets under management. For further information, please visit http://www.joneslanglasalle.com.
Web site: http://www.joneslanglasalle.com
Source: Jones Lang LaSalle
Charlotte Freeman, tel.: +44-(0)-7899-992-237, e-mail: charlotte.freeman@eu.jll.com or Madeleine Little, tel.: +44-(0)-7843-038-128, e-mail: madeleine.little@eu.jll.com both of Jones Lang LaSalle