Global cross-border realty investments surge 50%

DUBAI — Cross-border transactions rose 50 per cent to account for half of the $103.5 billion of direct commercial real estate investment transactions completed in the second quarter of 2011, signifying a resurging investor confidence regardless of increased market upheavals and uncertainty.

By Issac John

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Published: Thu 18 Aug 2011, 10:56 PM

Last updated: Tue 7 Apr 2015, 10:58 AM

Jones Lang LaSalle, a global real estate services company, said US and Singaporean investors emerged as the most active cross-border sources of capital.

The company said it still expected market volumes to reach its full year forecast of $440 billion, “so long as current market volatility and uncertainty abates and there are no further significant economic setbacks.”

“In an era of instability, good quality commercial property will benefit, but deals, particularly larger ones, will take longer to complete,” it said in its new Global Capital Flows report.

“In the first half of this year, we saw firms investing domestically and the private equity and unlisted funds investing across borders,” said Arthur de Haast, Head of the International Capital Group at JLL. “Funds are being more cautious with a focus on investing primarily at home and trusting experienced managers with their cross border investments. This trend should continue through the second half of the year if the economic environment remains uncertain.”

In the first quarter of 2011, cross-border direct commercial real estate investment volumes reached $37 billion, up 25 per cent from a year ago.

JLL said in a statement that global funds were by far the most active investors with net purchases of more than $13 billion. Singapore was the next most active with $2.1 billion and Sweden third with $800 million of activity.

Alongside the global funds, which by their nature led net cross-border activity, Singapore was the second most active net cross-border purchaser in Q2 2011 as investors looked abroad for returns due to the capital appreciation occurring domestically. Kazakhstan and Indonesia both accounted for around $550 million of net purchases in the quarter; the latter was almost exclusively made up by the purchase of Aviva Tower in London. The top ten markets globally which attracted the most investment included four markets in Asia (Hong Kong, Seoul, Shanghai and Singapore); three in the Americas (New York and Washington, D.C. and Toronto) and three in Europe, Middle East and Africa (London, Frankfurt and Paris).

“Risk aversion has risen over the past few months, meaning large deals are taking longer to close. While we’re seeing more transaction flow, in the second quarter there was a notable absence of big ticket, single asset transactions,” said De Haast. “There were fewer than ten $500 million-plus single asset sales this quarter, which is roughly the same number as the second quarter of 2010. There were over 20 big deals in the first quarter and while a significant number of large transactions are in the pipeline for the second half, the volatility of markets could cause further delay.”

JLL observed that capital around the globe is targeting both domestic and foreign investments. “This quarter, the United States was once again the greatest source of capital purchasing $27.1 billion in direct commercial real estate, up $7 billion from first quarter, but the increased volume was mainly spent domestically. The United States was also the third most active cross-border purchaser at $2.6 billion. The booming US investment activity is largely home-grown with more than 110 US cities appearing in the firm’s database in the second quarter versus less than 90 in first quarter and just 60 in the second quarter of 2010.”

In addition to surging US capital, the second quarter saw a doubling of acquisitions by the global funds to $20.6 billion and significant jumps in British, Canadian and German-sourced capital. Interestingly in these three countries most of the new capital was also spent domestically, JLL report said.

In the second quarter there was a total of $38 billion in cross-border purchases, up from $22.9 billion in the first quarter representing a 66 per cent increase.

“This was driven by a doubling of foreign-bound Singaporean capital, led by several major acquisitions in China, and by a huge surge by the global fund,” the report said.

The office sector was dominant in the second quarter, accounting for just over 40 per cent of total volumes, down from 45 per cent in the first quarter 2011. Retail’s share rose to 33 per cent from 28.5 per cent. The surge in hotels volumes led that sector to overtake industrial as the third most liquid sector globally with a share of eleven percent. Industrial meanwhile accounted for ten percent.

However, a report by CB Richard Ellis Group said commercial real estate investors might react differently to current conditions depending on their risk profile. Investors with higher risk tolerance will look for opportunities while more risk-averse investors may delay new transactions.

“Ultimately, real estate fundamentals change more slowly than property values or debt availability. However, should the decline in business and consumer confidence persist this will adversely affect the nascent recovery in property market fundamentals we have witnessed over the past year,” said Asieh Mansour, CBRE’s head of Americas Research.

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