Berlin's most famous landmark: Brandenburg Gate: Germany has surpassed the UK as a favoured destination for inter-regional property investment.  Source: © Berlin Partner GmbH/FTB-Werbefotografie

International real estate firm Jones Lang LaSalle’s new global real estate capital report, ‘Record Volumes, Record Globalisation’ released that was recently released, records global direct real estate investment of US$290 billion in the first half of 2006, up 30% on the same period in 2005. The Americas, Europe, and Asia Pacific have all seen unprecedented levels of transactions. 

Tony Horrell, CEO of Jones Lang LaSalle’s International Capital Group commented: “Real estate markets are continuing their strong evolution into a global asset class, with cross border investment now representing 44% of total volumes, compared to 34% for the first half of last year. The real proof of this globalisation is that inter-regional investment, meaning transactions involving parties not from the region where the asset is located, now represent 31% of total volumes (US$89 billion), up from 24% a year ago.  In relative terms the globalisation of real estate investment has had the greatest impact on developing markets.  In Central Europe and some Asian and Latin American markets, inter-regional investors are purchasing the majority of available prime quality stock.” 

“It is particularly interesting that indirect funds, principally REITs, valued at almost US$30 billion were privatised in the US.  This is not a trend we are witnessing elsewhere; indeed more countries are planning to introduce REITs in the near future, including the UK and Germany.” 

He concluded: “Across the world, fund managers are receiving record fund inflows as populations in developed countries approach retirement age.  Many of these funds are attracted by real estate’s strong stable returns and we are witnessing a significant re-weighting of investment portfolios in favour of real estate assets.  With this in mind, we believe that 2006 is on target to be another record year for commercial direct real estate investment and we expect total transactions to reach US$600 billion.” 

As in 2005, the largest inter-regional investments were made by global sources of funds, which invested US$22.3 billion in Europe (one third of total inter-regional purchases).  These global funds invested US$39 billion globally, which is almost equivalent to all activity in the entire Asia Pacific region.  Global sources of funds purchased over 40% (by value) of all German commercial property traded in the first half of 2006 and were also significantly more active in the Americas and Asia.   

US investors are deepening their exposure to real estate investment in Europe and Asia, and Middle Eastern investors continue to make significant net investments in Europe and the Americas.  Large investments continue to be made in the Americas by Asia Pacific funds (predominantly Australian).

Nearly 85% of total inter-regional purchases were in five markets: the USA (38%), Germany (19%), the UK (14%), France (8%) and Japan (5%).  The share of inter-regional investment attracted to the USA and Germany has increased significantly since 2005, rising from 25% and 14% of total inter-regional investment respectively, and Germany has surpassed the UK as a favoured destination.  Global sources of funds were very active in both markets.

Offices account for 48% of total inter-regional purchases (down from 52% in first half 2005) with US$33 billion invested in the sector.  Hotel investments have increased significantly to US$16 billion (23% of inter-regional purchases, up from 20% in 2005); very large portfolios in the USA and across Europe have been purchased by inter-regional investors. 

Regional Highlights:

• Americas – Direct commercial real estate investment in the Americas was US$129 billion in the first half of 2006, up 27% on first half 2005.  Cross-border investment represented 27% of total investment (up from 16% on H1 2005) and inter-regional investment jumped to 26% of total investment (up from 15% in H1 2005) as unlisted funds and global asset managers made significant purchases.  The USA represents 96% of the region’s transactions by value; other investment markets include Canada and the rapidly growing cross-border markets of Mexico and Brazil. 
• US and Canadian real estate ownership is becoming increasingly global, with cross-border investment totalling US$35 billion in the first half of 2006.  Global sources of funds have replaced German investors as the largest source of cross-border capital in both markets.  These ‘global’ funds were huge players in the Americas markets, purchasing over US$9.5 billion of Hotel portfolios, in addition to sizeable office and industrial investments.  Middle Eastern investors have continued their strong re-emergence in the US markets.
• Europe - Direct commercial real estate investment in Europe was US$117 billion in the first half of 2006, up 30% on the same period in 2005.  Cross-border investment represented 68% of total investment (up from 57% in H1 2005) and inter-regional investment reached 39% of total investment (up from 38% in H1 2005).  Three markets accounted 70% of European activity: the UK (35% of total European transactions), Germany (20%) and France (15%). 
• As forecast by Jones Lang LaSalle in 2005, Germany had a particularly impressive first half, with transaction activity almost reaching the levels attained in full year 2005.  Transaction activity was also more than double first half 2005 levels in France, Finland, Ireland and Russia.  The UK also had another strong half, particularly in London.
• Asia - Direct commercial real estate investment in Asia Pacific was US$43 billion in the first half of 2006, up 40% on the same period in 2005.  Cross-border investment represented 29% of total investment (up from 28% in H1 2005) and inter-regional investment reached 18% of total investment (up from 15% in H1 2005).  Japan now accounts for 51% of total Asia Pacific transaction activity, with a further 40% taking place in four major markets: Australia (12%), China (11%), Hong Kong (10%) and Singapore (7%).  As forecast in Jones Lang LaSalle’s 2005 paper, Japan and China were the stand-out performers in Asia Pacific.  Japan had a particularly impressive half with transaction activity almost reaching full-year 2005 levels.
• Asia Pacific cross-border activity rose strongly to US$13 billion, increasing in all major markets with the exception of Australia where scarce product and strong local demand is crowding out foreign players.  Cross border investors are now involved in over 25% of transactions (by value) in all Asia Pacific markets with the exceptions of Australia (11%) and Japan (19%).