Global stock market volatility and low interest rates are behind growing investor interest in real estate, a DTZ Research survey has found. 'With concerns over US growth rates and their impact on other major economies, equity markets are suffering and the defensive qualities of real estate are more pronounced in a number of countries,' its report says.
A key feature of the real estate investment market over the latter part of the 1990s was the growth in cross-border capital flows. Foreign investors now represented a significant proportion of total real estate investment in several countries.
Because of these trends and the economic crossroads at which the global economy stood, DTZ commissioned a survey of leading investors to establish their short-to-medium term real estate investment intentions. Those surveyed came from Europe, North America and Asia/Pacific and have a total real estate asset value of nearly EUR 250 bln.
About 70% held foreign real estate assets with the average almost 20% of their total portfolio. There was a continuing strong commitment to foreign real estate both in the short, medium and longer terms.
In the next two years 43% planned to increase their foreign-held portfolio, with this figure rising to 60% when looking at a three- to five-year horizon. Less than 10% planned to reduce their holdings.
Economic prospects followed by real estate performance were key factors determining the overseas markets in which to invest. Political risk, market size and the operating/legal environment were also considered important. Investors were most interested in offices. This was followed by retail, industrial then residential.
Two noticeable changes in the short term were the reduction in planned office investment, with 81% saying they would invest in this sector compared to the current 87%, and a similar reduction in mixed-use investment down from 8% to 2%.
Within a three- to five-year time frame more investors planned to invest in the retail and leisure sectors. Industrial was the only area where a reduction in investor interest was anticipated in both the short and medium terms.
A large proportion, 84%, of the Europeans held real estate assets in foreign markets within Europe, with this figure expected to rise to 95% within the next five years. Not quite 30% had portfolios in the US while 8% had invested in Asia/Pacific.
In the next five years the figure for the US was expected to increase slightly while for Asia/Pacific it was expected to rise substantially to 22%.
Of the North American investors, 31% had holdings in Asia/Pacific with this expected to increase to 46% within the next five years. Their European investments were expected to increase from 54% in the short term before dropping back to the current level in the three- to five-year horizon.
About two-thirds of Asia/Pacific investors had holdings in Europe and one third in North America. The European investments were expected to remain static over the next five years but 66% expected their North American holdings to increase.
(source: DTZ International)