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Global Investment Market Hits 350bn Euros Mark
3 Mar, 2006, Paris
Global investment volumes in commercial property rose by 39 per cent last year to reach a record 350bn euros, according to the latest research by global real estate consultant Cushman & Wakefield.
Of this, non-domestic capital now represents 24 per cent of the global market, up from 21 per cent in 2004. Europe has the greatest penetration of cross-border players, at 43 per cent, followed by Asia at 28 per cent and finally the US at 3.5 per cent.
The research was presented at Cushman & Wakefield's European Capital Markets Conference, held in Paris on 2 February and attended by around 200 elite of the global investment markets, as well as by members of Cushman & Wakefield's Capital Markets Group.
David Hutchings, Head of Research of Cushman & Wakefield Healey & Baker (C&W/H&B), the European division of C&W, says: "Property has proved an attractive investment when compared with bonds and equities. While yield compression is likely to slow in most regions in 2006, we still expect the sector to produce highly competitive returns and, as a result, even though stock shortages are a real limiting factor, investment volumes are likely to grow further still in 2006. Our current forecast is for a global total of more than 380bn euros."
Michael Rhydderch, Head of C&W/H&B's cross-border Capital Markets Group, says: "Although cross-border investors are increasingly important players in the global investment market, we need to remember that there are still marked differences in lease structures and real estate practices between and within national markets."
Cross-border players account for 43 per cent of European market
In Europe, the UK has by far the highest level of investment transactions. Transaction volumes were up 29 per cent on 2004. Quoted property companies were the most active investors, followed by foreign buyers, who saw their share of the market rise to 34 per cent compared with a five-year average of 24 per cent.
Germany rose two places up the ranking of investment volumes by non-domestic players to the No 3 position. "After the first wave of opportunistic buyers, we are now seeing the second and third waves entering the market, from institutional investors to publicly quoted and private companies," says Martin Brühl, Head of C&W/H&B in Germany.
Of the 'emerging' economies of Eastern and Central Europe, Poland has the highest investment volumes, and is highest in the ranking in terms of the volume by non-domestic investors. Michael Atwell, C&W/H&B's Head of Capital Markets in Poland, says: "Strong economic growth, growing consumer demand, together with the perceived reduction in risk since the country joined the European Union in 2004 are the driving forces behind the strength of Poland's investment market."
Investment activity in NY 44 per cent up
Total investment volumes in the US stood at US$172bn (145bn euros) for 2005 – a 27 per cent rise on 2004, but a 45 per cent rise when quoted in Euros. However, non-domestic investors only accounted for 3.5 per cent of volumes.
The most important non-domestic investors in the US last year were the Australians, followed by German investors, and then those from the Middle East and Ireland. The offices and retail sectors in the key coastal cities were the most popular.
Investment activity in New York was up 44 per cent on 2004. The largest investment transaction last year in the US was the sale in New York of the MetLife building for US$1.72bn. However, foreign investment at US$3.2bn is down on 2004's US$4.4bn, a year when non-domestic players dominated New York trophy deals.
The Los Angeles Metro market showed the largest increase in non-domestic investment, with the volume almost doubling from 2004's US$460mn to US$810mn in 2005. Among the domestic investors, Real Estate Investment Trusts (REITs) have grown dramatically since the early 1990s, and are now the largest investors in the US, surpassing banks and insurance companies.
Emerging markets of China and India
The percentage of commercial real estate investment in Asia accounted for by non-domestic investors rose to 28 per cent in 2005 from 24 per cent the previous year, reaching 52bn euros.
Donald Han, Managing Director of Cushman & Wakefield's Singapore office, who spoke at the Conference on Asia: "All eyes are on China - the country is now the world's fourth biggest economy after the US, Japan and Germany, and China's economic growth is due to run at more than 9 per cent this year and it has 24 cities with populations of more than five million.
"China and the rest of Asia will see higher fund allocations this year as the region provides relatively higher yields compared with the European and US markets. The office investment market will see the bulk of transactions over the next 12-18 months as a wave of rent increases hit major gateway cities in Asia."
Economic growth in the other big emerging economy, India, is due to run at more than 7 per cent this year, with particularly strong growth in the second and third-tier cities. Sanjay Verma, Managing Director of Cushman & Wakefield in India, says: "We are looking at a demand for more than 80 million square feet of offices between 2005 and 2008. We expect 80 per cent of this demand to come from companies operating in the IT and business process outsourcing sectors, and for 40 per cent of this demand to be in south India."
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