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Direct real estate investment volumes in Asia Pacific up 19% quarter on quarter in Q2 2012

Real assets with predictable income streams gaining popularity with investors according to Jones Lang LaSalle capital markets research

  • Global Q2 2012 volumes up 24% on Q1 to US$108 billion, flat year on year despite negative sentiment
  • Q2 2012 Asia Pacific volumes up 19% compared to Q1 2012 to US$26 billion
  • Asia Pacific volumes up 30% in Q2 2012 year on year, reflecting ‘shut-down’ in Japan last year following the earthquake
  • Full year 2012 global forecast remains at US$400 billion

SINGAPORE, 26July 2012 – Global real estate investor purchasing activity picked up in Q2 2012 with total global volumes increasing 24% on Q1 to $108 billion according to data collected from more than 60 countries by Jones Lang LaSalle Capital Markets Research. This reverses the slight dip in activity recorded in Q1 2012 when volumes reached $87 billion.

Asia Pacific, Europe, Middle East & Africa and the Americas all recorded an increase in activity in Q2 compared to Q1. The Americas posted the most significant increase in quarterly volumes, with a 33% increase to $47 billion.  Asia Pacific posted a 19% increase in quarterly volumes to US$26 billion and European volumes were up 17% to US$35 billion.

Asia Pacific was the only region to record year on year growth, with $26 billion compared to $20 billion in Q2 2011 as China, Australia, Hong Kong and Singapore all recorded increased trading activity.

Arthur de Haast, Head of the International Capital Group at Jones Lang LaSalle said:
“Investment volumes continue to be resilient. Demand for the best income generating real estate is strong across the world as sovereign wealth, pension funds and private wealth continues to diversify across investment classes.”
“Despite European economic headwinds, appetite for real estate continues to be strong. This is due to improving real estate market transparency and falling government bond yields.”

London - world’s hottest market
At the city level, London retains the top spot for most active city in Q2 2012, with $8.7 billion of total volumes, nearly twice that of Paris and New York with $4.7 billion and $4.3 billion respectively.

Alastair Meadows, director International Capital Group Asia Pacific at Jones Lang LaSalle said:
“London retains global appeal. Real estate lot sizes are in the right bracket to attract the big ticket money. You also have all the benefits of a strong education system, a central time zone, good transport links and a stable government. If the market picks up in the second half of the year, we will see interest grow in real estate outside of the capital.”

Retail sector gaining ground, but slowed in Europe after stellar 2011
Globally, in Q2 2012, the retail sector increased its investment volumes by 66% to $31 billion compared to Q1 2012. This is still behind offices at $50 billion, but recognises the demand for prime assets. In Europe, however, retail investment dropped to $12.4 billion in H1 12 after a record $54.5 billion in the full year 2011 mainly due to lack of deals completing.

The hotels sector is predicted to have a busy second half as global deals progress and close, whilst niche assets like data centres will attract more attention as corporates focus on core business activities and look to offload non-core real estate assets.

Global fund purchasers more measured due to falling yields
Despite being the second most active purchasers behind USA capital, global fund activity has fallen by 50% compared to 2011. Having been at the forefront of purchaser activity over the last two years funds are now consolidating and examining other opportunities.

Cross-border transactions are robust and steady, accounting for 40% of volumes. However, these deals are focused on a narrow range of geographies and assets and deals are taking longer as due diligence increases transaction times. Europe continues to attract the lion’s share of inter-regional investment, with US buyers coming to the fore. The UK and France saw 75% of total deals involving a cross-border party, 70% in Russia and 50% in Germany. Three of the largest cross-border deals were in London.

Brazil also emerges in the top 10 sources of cross border capital for the first time, demonstrating the importance of emerging capital

David Green-Morgan, Global Capital Markets Research Director at Jones Lang LaSalle commented:
“We predict increased activity in the second half of the year as investors continue to move towards real assets as yields from other asset classes remain low. We have seen increased activity from Canadian, US and Middle Eastern money. We can also expect increased activity from capital from Asian countries such as China, Indonesia and Thailand”.

Although global half year volumes are slightly below the level of 2011 there has not been a dramatic decline in investor activity or capital raising, although transactions are taking longer to close and debt financing remains an issue. 

Given this background Jones Lang LaSalle expects full year volumes to be broadly consistent with 2011 at US$400 billion. In Europe, H1 2012 investment was down 9% y-o-y, which was in line with our full year 2012 forecast of up to 10% downside from 2011 investment volume of €119.7bn. Although we maintain the full year forecasts in euro, there will be an adverse effect on the global forecast for Europe due to the lower exchange rate of the euro versus the US dollar.

If pricing in core locations continues to rise the many opportunities available in secondary will attract increased attention and this may provide an additional boost to what is usually the more active second half of the year.