Global investment in real estate increased by 12% to $457 billion in 2004 (on 2003) according to a report soon to be published by Jones Lang LaSalle. The report also identifies that 60% of cross border investment (US$60bn) took place region-to-region, showing that investors seeking international diversification are more likely to do so across continental boundaries rather than within their own region.
Tony Horrell, CEO Global Capital Markets, Jones Lang LaSalle said: "The globalisation of real estate investment is more than simply an extension of booming local and regional investment markets or a 'theme for the medium term'. It is here with us, now, and we believe it is here to stay. Not only is there a vast weight of capital flowing between regions, sophisticated global investors are exerting an increasingly significant influence on local markets through competition with domestic and regional players.
"We are witnessing an increasing trend towards the globalization of real estate. Service providers such as Jones Lang LaSalle are positioning themselves to leverage from an increasing number of real estate players who are now operating globally. Not only are investors seeking to internationally diversify their portfolios, many countries are now following the example of the US and Australia, relaxing legislation to allow the operation of REIT markets that will increase transparency and market efficiency. In addition to this, increasing capital allocations towards real estate and a limited availability of real estate product within sophisticated markets is driving investors to seek alternative opportunities off-shore.
Headline findings highlighted in the report include:
- Approximately 5% of the global investible universe was traded in 2004.
- Cross-border investment totalled US$99 billion, with rapid growth in Asia-Pacific and North America.
- North American investors were the key source of capital in the global investment market, and Europe was the most active location for cross-border investment.
- The office sector accounted for 59% of global capital flows in 2004, due to its size, familiarity and improved performance prospects
- Sales activity by global investors marginally outweighed purchase activity, with investors actively managing international portfolios by trading on the buy- and sell-side.
Trends for the future highlighted in the report include:
- Strong real estate performance over the short to medium term is expected to emerge as market cycles offer upside opportunities and investor demand continues to exert downward pressure on yields
- Capital allocations to global real estate are expected to grow as equity continues to flow from pension funds and low interest rates fuel the debt-driven sector, reinforcing yield compression and positive returns.
- Accordingly, demand from core and value-add investors will grow, with a focus on solid risk-adjusted returns in markets with high transparency and good liquidity
- Given the current weight and expected new sources of capital, the fastest short-term growth in Inter-Regional investment will be in markets where there are significant improvements in transparency and a large stock of institutional quality investible real estate.
- Less mature markets generally require more significant improvements in transparency before rapid growth of global capital flows is seen, particularly from core and value-add investors.
Source: Jones Lang LaSalle