GLOBAL real estate investment this year is expected to be down 30 percent on last year's record breaking level that saw volumes up 8 percent year-on-year to US$759 billion, one of the world's premier real estate advisers said yesterday.
Tony Horrell, international director and head of European capital markets at Jones Lang LaSalle, said in the company's latest Global Real Estate Capital Report that despite the expected drop, 2008 forecasts remained positive.
"Reduced debt availability and investor confidence are likely to stay for much of the first half of 2008 as the impact of the debt squeeze continues to ripple through markets, and central bankers and financiers work to stabilize and stimulate the debt markets," Horrell said.
"The situation is being exacerbated by unease about the global economy, in particular about major economies such as the United States, the United Kingdom and Japan."
The Jones Lang LaSalle report said factors that were expected to constrain volumes this year included buyers and sellers adopting "wait and see" strategies; prices having peaked in 2007 in many major markets; a misalignment between buyers' and sellers' price expectations; reduced availability of debt, tougher lending criteria and increased debt costs; reduced willingness and capacity to transact large lot sizes, a narrower spectrum of investors; and more exacting due diligence which would lead to longer transaction processes.
However, the company did not expect a strategic and planned withdrawal of capital from real estate in 2008, or investors to significantly adjust their allocations to the asset class.
Forecasts for 2008 remain positive, and the long-term trends in real estate, such as the growing credibility of real estate as an investment asset class, improving transparency, urbanization, and restricted supply, would continue to be positive drivers.
The report said while domestic investment remained at about US$400 billion globally in 2007, which was similar to 2006 volumes, cross border investment increased by US$58 billion to US$357 billion in 2007.
Of that, inter-regional investment accounted for US$242 billion. In percentage terms, cross-border transactions now account for 47 percent of total transactions and inter-regional for 32 percent of total transactions.
The data covers all direct commercial property transactions (including hotels) but excludes entity level and residential transactions.
Geographically, the US, Germany and the UK have been the traditional targets of inter-regional investors. These markets accounted for 25 percent, 19 percent and 15 percent of inter-regional purchases respectively.
New directions
However, there was a significant fall in the share of investment attracted to the UK and Germany as new markets were targeted. Japan (11 percent) and France (9 percent) moved up the popularity curve, with global funds very active in both markets.
Together these five markets accounted for 80 percent of total inter-regional purchases.
The emerging markets of China, Poland and Russia also attracted strong interest.
In Asia Pacific where remarkable growth was recorded in both halves of 2007, the market was expected to be more resilient in 2008, and volumes would unlikely achieve the heights of 2007.
"We are seeing a definite shift in the origin of active investors with those less reliant on debt funding such as the German core funds, generating solid interest in quality real estate assets across the region," said Stuart Crow, head of Asia Capital Markets.
"Overall, the real estate picture for Asia looks positive, and global capital allocations continue to re-weigh in Asia's favor. We are likely to expect a rebound in investor confidence and transaction volumes to increase in the second half of 2008," Crow added.
Cross-border volumes in the Asia Pacific region surged to US$57 billion in 2007, accounting for 47 percent of total transactions.