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Global real estate investment of US$382 billion in H1 2007 surpasses full year 2003 figure

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Provisional figures from Jones Lang LaSalle show that global direct real estate investment totalled a record US$382 billion in the first half of 2007, a 16.6 per cent rise on volumes in the same period last year – and surpassing the full-year investment in 2003. Global real estate investment grew for the 16th consecutive quarter, with the Americas, Europe and Asia Pacific once again achieving record investment volumes.

Investment in Asia Pacific rose 12 per cent to US$55 billion, with a significant proportion of the increase representing additional cross-border investment. Japan, China and Singapore represented the strongest real estate markets in the region. Singapore became 2007’s hottest global market, with prime capital values increasing by 50 per cent in H1 fuelled by astounding rental growth and yield compression.

Stuart Crow, head of Asia Capital Markets at Jones Lang LaSalle, says, “Asia continues to be the focus for many global investors, given the continued strong economic fundamentals, improved liquidity via the REIT markets, and better transparency in some of the more emerging markets. Cross-border investment is at an all-time high; yet, it is likely to increase further in the next 12 months, particularly in the most-sought-after markets of Japan, Singapore, India and China. Return requirements continue to decrease as the competition for good-quality assets increases, with many opportunistic-style investors having to move into development, or secondary markets in order to achieve their total return projections.”

In the Americas, total investment surged 32 per cent to US$170.7 billion, primarily driven by the trading (and re-trading) of prime US properties acquired as a part of private equity-led REIT privatisations and subsequent portfolio break-ups. Eight single assets valued in excess of US$1 billion were sold – equalling the number sold in full year 2006. The majority of prime assets were sold to domestic investors – a notable change from 2006. Overall, cross-border investment increased again in the region. Latin America had a very strong half as the market became increasingly sought after by global, North American and European investors.

European investment volumes rose 4 per cent to US$156.6 billion, with the United Kingdom, Germany and France accounting for over two-thirds of volumes. Quality assets were particularly sought after. The UK market experienced a strong quarter for trophy assets, with six single assets valued at over US$1 billion trading – up from one in full-year 2006. Prime trophy assets also attracted very competitive bidding in Germany and France. Global, US, Irish and Spanish investors were dominant cross-border investors. German funds made a strong return to the European investment markets, many having significant liquidity after heavy selling activity in 2006.

Tony Horrell, CEO of Jones Lang LaSalle’s European Capital Markets Group, notes, “For the remainder of 2007, Jones Lang LaSalle expects global real estate markets to remain strong. However, we expect investors to become increasingly selective about markets. Globally, we continue to see a weight of money targeting the sector – evidenced by the record real estate funds raised by private equity in recent months. Cross-border investment remains strong – driven by global, Middle East, North American, Irish, German and Australian funds.”

Padraig Brown, head of Global Strategy and Research, Jones Lang LaSalle International Capital Group, adds, “The increased cost of debt in Europe and North America has led to negative yield spreads in many markets, forcing highly leveraged investors to adopt increasingly opportunistic strategies including development and repositioning of assets. Equity investors, with less reliance on debt, now occupy a strong position in competitive bidding against highly leveraged investors.”

“In the Americas, we are seeing a ‘flight to yield’ with investors seeking relative value in secondary and tertiary markets less affected by recent yield compression. Many of the privatised REITs have now been broken up and resold, and we expect transaction in H2 to return to more historical levels.”

Europe is experiencing a ‘flight to quality’ in many markets, with the pricing for some secondary assets now considered too close to that of prime assets. Many investors increasingly favour the European mainland over the United Kingdom as interest rates approach 6 per cent in the latter market. Emerging Europe remains popular with opportunistic investors.

– Bangalore Bureau

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