WORLDWIDE The near doubling of global commercial real estate transactions in the first half of 2010 compared to the same period a year ago was underpinned by a return to pre-crisis levels of cross-border investment, according to new research from Jones Lang LaSalle.
Total global commercial real estate investment totaled US$132 billion for the first half of 2010, compared to US$76 billion in the first half of 2009. Activity is now back above 40%, a trend expected to continue for the remainder of 2010. This reflects a general market pick-up as confidence improves, a return to the globalization of real estate investment and a search for value by investors.
“Mixed economic news plus longer transaction processes due to investor due diligence may mean that investment volumes do not continue to grow at levels seen in the first half 2010,” says Arthur de Haast, head of the International Capital Group at Jones Lang LaSalle. “However, full-year volumes will be between US$275 billion and US$300 billion for 2010, significantly ahead of 2009 (US$209 billion), with cross-border investors continuing to be very active.”
Europe had the highest volumes of cross-border activity in the first half of 2010; more than 54% of Europe transactions were cross-border, and of that, 24% was inter-regional. The Americas transactions, historically driven by strong domestic investors, recorded the highest proportion of inter-regional investment of all three regions; more than 35% of all Americas transactions were inter-regional. Asia Pacific transaction volumes did not grow at the same pace as the other regions in the first half, though it did not see the same declines in 2009. Most Asia transactions were domestic (69%), and of the 31% cross-border transactions, 15% were inter-regional.
“After the retrenchment in 2008 and 2009 of many investors to their domestic markets, 2010 has seen a bounce-back to pre-crisis proportions of cross-border activity,” says Richard Bloxam, head of pan-EMEA capital markets at Jones Lang LaSalle. “Total volumes, whilst recovering markedly year on year, remain subdued in comparison to 2007.”
Much inter-regional activity has targeted London and Paris, and interest is increasing in Germany. Intraregional investment in EMEA has seen a strong recovery, particularly of the larger lot sizes and shopping centers as institutional demand and available debt continue to return to real estate, particularly for the more prime assets.
“The return to pre-crisis levels of cross-border investment has also signaled increased activity from Asian buyers in major international markets, including the commercial and residential sectors in London,” says Alistair Meadows, director of the International Capital Group for Asia Pacific. “Cross-border capital from both institutional and private Asian investors in Malaysia, Singapore, Hong Kong and Korea—the fourth most active globally in the first half of 2010—will continue making a major impact on tier one global markets.”
The UK has been the most popular destination for cross-border investment so far in 2010, with US$7 billion invested, while Germany replaces the United States as the second most popular destination. The United States was in third place despite a doubling in transactions in the U.S. market, from US$2.2 billion to US$4.3 billion. Japan, Australia and Sweden feature in the top 10 after not appearing on the list a year ago.
Cross-border investment continues to be dominated by major and mature institutional investors from the world’s most liquid capital sources. Global funds, which raise capital in multiple regions, were the largest investor group, followed by German, Singaporean, Dutch, Middle Eastern, British, South Korean, American, Hong Kong and Swedish sources.
Global funds were the most active inter-regional purchasers in the first half, doubling the amount they invested compared to a year prior. Middle Eastern investors remained the second largest inter-regional purchasers, also more than doubling their investments year over year. U.S. investors increased their inter-regional investments by 48%, while South Korean investors were fourth most active inter-regionally, with US$800 million, having not featured in the top 10 inter-regional purchasers in 2009.
“The rise in cross-border transaction volume also shows a real estate return in the major markets, and an encouraging 176% increase year over year in the United States, which held the greatest fall in cross border investment during the downturn,” says Steve Collins, managing director of the Americas for International Capital Group. “Investors have started to move back into the United States with major purchases thus far in 2010. However, investor appetite has led to a differentiated landscape where demand is especially robust for well-leased, core-style product in gateway markets such as New York and Washington, D.C., whereas demand remains much weaker for the non-gateway cities markets.”
German investors, on the other hand, have been less active on the inter-regional front, with volumes falling from US$1.1 billion to US$500 million.