Investors more bullish on cross-border transactions, says Jones Lang LaSalle

SINGAPORE: Jones Lang LaSalle’s year-end 2011 Global Capital Flows report shows there was US$410.6 billion (RM1.24 trillion) of direct commercial real estate investments globally in 2011, a 28% increase over 2010.  

Transactional volumes in 2012 are expected to match that of 2011, but downside risks remain prevalent, said the global real estate investment management firm in a recent statement.

The level of cross-border purchasing activity rose from 27% in 2010 to 31% in 2011. Cross-border purchases accounted for 30% of total volumes in 4Q2011.

The research found that London was the most active city globally last year, with New York, Paris, Tokyo and Singapore rounding out the top five.

“Despite the financial crisis over the past two years, commercial real estate remains a core asset class for many investors,” said David Green-Morgan, global capital markets research director at Jones Lang LaSalle. “Last year finished with a bang and it was the activity in the European markets that grabbed the headlines in the final quarter of the year, against most people’s expectations.”

In the fourth quarter of 2011, global direct investment volumes were 4% higher than the third quarter of 2011, at US$106.2 billion. This marks only the third time in the last three years that volumes had passed the US$100 billion mark. Compared to 4Q2010, global direct investment transactions were down 6% in 4Q2011.

Cross-border purchases as a proportion of the total remained very stable between 3Q and 4Q at 30%.  However, on an annual basis, investors have been more bullish, increasing the level of cross-border purchasing activity from 27% in 2010 to 31% in 2011. Total cross-border purchases for 2011 was almost US$125 billion, a 47% increase over 2010.

“This is a firm indication that investors are prepared to increasingly look outside their own countries for suitable opportunities when macro circumstances allow,” said Arthur de Haast, lead director of the International Capital Group at Jones Lang LaSalle. “However, cross-border activity only tends to do well when the global economy is supportive. If investor sentiment turns more negative, then it will be cross-border and inter-regional flows that will be the first casualty.”

Regional perspectives
The US maintained its number one spot as the single largest source of real estate capital with more than US$25 billion worth of purchases in 4Q; this was down 17% on 3Q. The upside came in Europe, with the majority of the main European markets, apart from the UK, all increasing. The French led the way with a doubling of investment volumes domestically and cross border to US$7.6 billion in 4Q from US$3.4 billion in 3Q. This helped push their 2011 volumes 55% higher than 2010.

Top investment targets
London remained the most actively traded city in 2011 (US$24.3 billion) with New York City (US$19.2 billion) climbing into the second position. hanghai, on the strength of the Chinese economy, moved up from 13th position to 9th, trading US$7.2 billion in 2011 (see table).

The office sector continues to be the favourite with investors, although retail is continuing the inroads it has made in recent years, reaching almost 30% of total transactions in 2011, the highest it has recorded. Retail, industrial and hotels have all taken market share away from the office sector over the last two years.  Mixed-use sites lost the most in 2011, with transactional volumes down 35% from 2010, and down more than 50% from 3Q to 4Q 2011.

Jones Lang LaSalle’s Global Capital Flows analyses are released quarterly.

This article appeared on the Property page, The Edge Financial Daily, February 10, 2012.

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