$900 Billion Invested in Global Real Estate during 2006
CHICAGO, March 12 - PRNewswire-FirstCall — Jones Lang LaSalle’s latest global real estate capital report, released today, records global real estate investment of US$682 billion in 2006, a surge of 38% over 2005, and nearly double 2003 volumes. Globalization of the asset class continued relentlessly as 42% of investment value now involves a cross-border transaction (i) (up from 34% in 2005), and 29% were inter-regional (up from 23% in 2005) (ii). Already a new annual record for the asset class, investors posted an additional $218 billion to the total transaction volume with residential and entity-level deals accounted, bringing the total aggregate global real estate investment volume to $900 billion — the strongest ever performance by global real estate markets.
Tony Horrell, CEO of Jones Lang LaSalle’s International Capital Group, commented: “There is currently a large overhang of investment targeting the sector with $4 of money chasing every $1 of product. Global real estate markets performed very strongly throughout 2006, and it was the first year that all major developed and emerging market returns were both aligned and positive. Investment was driven by increased allocations to the asset class, growth in investible for investment and by the increased attention of opportunistic private equity players who identified relative value in the sector. These increased flows into real estate gave rise to two notable phenomena in 2006 — an increasing number of ‘mega-deals’ and continued globalization of the asset class.”
The United States accounted for 40% of global transactions by value and the UK accounted for 15%. The German and Japanese markets have almost doubled their share of global volumes to 9% and 8% respectively, and the German market now attracts the same share of global cross-border investment as the U.K.
Report highlights:
* North and South America: Direct commercial real estate investment in the Americas reached US$283 billion in 2006, up 31% on 2005. Cross-border investment represented 25% of total investment (up from 16% in 2005) and inter-regional investment reached 22% of total investment (15% in 2005). Investment markets in the Americas region are overwhelmingly located in the United States (96% of the region’s transactions by value). Other investment markets include Canada and the rapidly growing cross-border markets of Latin America - dominated by Mexico and Brazil.
* Private Equity Fueling the Market: private equity investors have rapidly accumulated portfolios by pursuing entity-level deals. This phenomenon, particularly prevalent in the United States, saw the privatization of REITs and other listed real estate owners valued at over US$48 billion in 2006. In February 2007, Blackstone purchased Equity Office Properties Trust, the world’s largest REIT, for US$39 billion highlighting both a potential arbitrage between public and private markets and opportunistic investors’ enormous appetite for real estate assets.
* Cross-Border Investor Mix: The mix of cross border investors in the Americas changed significantly in 2006, with Australian, German and Hong Kong investors dramatically reducing their purchasing activity. Major cross-border purchasers in 2006 included Global funds (US$18 billion), Canadian funds (US$5 billion), and Middle Eastern funds (US$5 billion). German funds sold real estate valued at US$11 billion, principally located in New York, Boston and Chicago and purchased assets valued at US$3 billion (Chicago and Philadelphia). Australian funds, having dominated the United States cross-border market in 2005, reduced their purchase activity to US$3 billion (predominantly retail) and shifted their attention to Europe.
Looking ahead, Steve Collins concluded: “Total transaction and cross-border volumes continue to rise globally, and real estate continues to produce a stable return that is paying off for investors across the globe. We expect 2007 to be at or near the record volumes of 2006. With the weakened dollar, we also expect an increased level of cross-border investment into the United States, and the probable return of German buy-side investing.”
Collins also noted that investment vehicles have opened up in the United States that should impact growth in global transaction volumes. “The emergence of the Collateralized Debt Offerings (CDO) market provides investors — specifically highly leveraged Opportunity Funds — the opportunity to place additional, cheaper, non-taxable debt on an investment without encumbering the other financing positions. This will allow buyers to increase returns because they can now push underwriting values to higher levels due to this inexpensive new debt in the marketplace.”
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