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The real estate investment markets continue to experience an upswing globally
7 Mar, 2012, Frankfurt
• In 2011: Investment volumes in commercial real estate climb by 14% to $727bn (Euro
Across the globe, real estate investment markets developed more strongly than anticipated in 2011. The investment volume in commercial real estate climbed by 14% to $727bn (Euro 551bn) on the previous year. The international real estate services organisation Cushman & Wakefield (C&W) addresses these results in its current Investment Atlas. Strong demand for premium properties recorded in all regions was just as much a driver of positive market developments as investors' general search for inflation-proof investment products.
Broader issues dampen second half of 2011
After a strong first half of the year, the global real estate investment markets lost their momentum in the second half. The reasons for this were broader issues that overshadowed proceedings: Developments in the last six months of the year were influenced significantly by inflation, political instability, debt crises and - last but not least - uncertainties on the financial markets. There was an increase in risk aversion from investors in general, and the investment volume in the commercial real estate sector fell by 7% on the first half of the year. However, for the established investment markets, a considerable increase was recorded of 21% on the previous year. And so their global market share climbed from 56% to a current 60%.
By contrast, this latest cloud over the markets was felt much more strongly by the so-called 'emerging markets': Their total annual result increased by just 3%. "We believe that this is just a temporary glitch for the developing markets," claims Inga Schwarz, head of research at C&W in Germany. "Whilst the global investment volume in the commercial real estate sector is still hovering a good 30% below its pre-crisis level, the 2011 annual result for Asia stands at roughly 39% above 2007, which was a strong year. Also, the Latin American markets are already hitting their pre-crisis levels once more. The 2007 result was recently surpassed by 0.5%"
Once again, the Asian region was the number one investment destination for investors. In 2011, this large area's market share amounted to 50% of the global investment volume. This equates to a turnover of some $364bn, or Euro 275bn; thus almost replicating the previous year's result of $363bn.
In the People's Republic of China, the largest investment volume for a single country was recorded yet again. In total, $246bn, or Euro 186bn, flowed into commercial properties. As a result, it was not just the investment volume that fell - by 5.5% - on 2010, but also its lead over the USA evaporated, too. In the case of the latter, a strong increase of 50% on 2010, and a total annual result of a good $156bn (Euro 118bn), were recorded.
As in the previous year, investors preferred to go with the established - or so-called 'core' - locations. The transaction volume for the 25 most important global real estate locations increased by 28% in 2011 - a growth rate significantly above the global average of 14%. The top three investment cities in the world in 2011 were: New York ($28.2bn, or Euro 21.4bn); London ($27.1bn, or Euro 20.5bn) and Tokyo ($18.6bn, or Euro 14.1bn). This means New York wrestled the top spot back from London once again.
For 2012, C&W forecasts two half years of investment that will be strong in different ways. In most of the markets analysed, investors are currently acting with a great deal of caution, and it is expected that this attitude will be one that dominates the market throughout the first half year. The analysts at Cushman & Wakefield believe that investment activity will continue to slow down in the first half of the year. A figure of around $326bn, or Euro 247bn, is considered likely for the half year result. By contrast, investors are expected to abandon their restraint in the second half of the year and contribute to a growth in investment volume of around 20% on the first half year. This would result in the total annual result for 2012 reaching last year's figure. The experts at C&W are currently predicting an investment volume of between $710-720bn, or Euro 538-546bn.
Supporting this prediction, Glenn Rufrano, Global President & CEO of C&W, states: "At the moment, an increasing risk tolerance is noticeable on the market amongst investors with regard to government bonds and in real estate. We expect this trend to intensify in the second half of the year, which will lead to increasing investment volumes." Along with increasing investor demand, the looming expansion in supply may contribute to an increase in transaction activity, owing to the sale of bank loans and recapitalisation processes.
In its latest study, C&W stresses that the global investment markets will remain active in 2012, irrespective of further developments with regard to broader issues. Greg Vorwaller, Head of Global Capital Markets, emphasises that, "Over the coming months, much will depend on whether market participants work toward positive economic development for the future and believe in it. Confidence in growth should encourage investors to bring investment capital to the market which was held back in 2011. But even if their confidence in economic growth remains low, because of the relative investment security involved, they may keep real estate right at the top of the agenda, thus providing activity in the market. The leasing markets may also develop dynamically overall, because what we have noticed recently is that lessees are striving to make the best possible use of their space - irrespective of economic growth. Employers are taking structural, demographic and technical changes into consideration. They are paying attention to sustainability and not only operating and additional costs. Even if they do not expand their workforces, they are not afraid to acquire new space. This dynamic in the leasing markets will also have a positive effect on the investment markets."
EMEA: Core markets favoured for second half of 2011
In the EMEA (Europe, Middle East and Africa) region, the volume of investment in commercial real estate increased by 17% over the past year to $180bn (Euro 136bn), during which time an increase of 76% was recorded for Central and Eastern Europe, as was an increase of 8% for Western Europe. "At the beginning of the year 2011, investors appeared to still be very optimistic and prepared to take risks. However, with the development of the European sovereign debt crisis, we were able to observe how investors turned back to the stable core markets," explains Inga Schwarz. "The figures speak for themselves: In Portugal, Ireland, Spain and Greece, investment volumes in commercial real estate fell by some 26% in 2011, whilst the rest of the Eurozone was able to chart growth of 17%. We expect investors with a low-risk profile to focus once again on Germany and the Scandinavian countries over the coming months - and especially with regard to the retail sector.
C&W is forecasting a result for the entire year of 2012 for the EMEA region of $161bn, or Euro 122bn.
Germany behind the UK as the no. 2 investment location in Europe with Euro 23.5bn
In Germany, the investment volume for commercial real estate climbed by 20.5% in 2011 to Euro 23.5bn. Germany is therefore the second most favoured investment location in Europe behind the United Kingdom (Euro 38.3bn), which fell short of its decent result the previous year by 8.5%. Following in third place, with growth of 49.2% and a total annual result of Euro 16.5bn, was France.
"The German investment market appeared distinctly stable in 2011. After a result of Euro 11.3bn in the first half of the year, we were able to record a turnover of Euro 12.2bn for the second half. Investors have confidence in Germany and its real estate markets with their above-average stability." Schwarz continues: "Based on good prospects for the German economy, when compared internationally, we believe that investors will make Germany a focus for their investments once more in 2012. In spite of the broader issues having an altogether negative effect - especially the uncertainties on the global financial markets - our forecast for 2012 is a result just higher than that of the previous year."
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