According to a new study by Jones Lang LaSalle (JLL), global direct commercial real estate investment fell 21% year over year to US$77 billion in Q1 2012, down from US$97 billion in Q1 2011. Cross-border capital flows fell to just 39 percent of total transactional volumes in the third quarter, the lowest level since Q3 2010.
Important The following are some of the highlights from the JLL report: house for sale
In the first quarter of 2012, direct investment volumes in Asia Pacific totaled US$20 billion, down from US$28 billion in the fourth quarter of 2011 and US$27 billion in the first quarter of 2011.
In the field, Asian investors dominate: US$5.7 billion was invested from Asian sources elsewhere in the world, compared to just US$400 million from the Americas and EMEA.
The revival of Japan: We saw a significant increase in cross-border capital flow into Japan in Q1 2012 (due primarily to two major logistics deals), as well as the first signs of Japanese investors looking outside Asia Pacific.
Jones Lang LaSalle's Stuart Crow, head of Asia Pacific Capital Markets, tells World Property Channel, "While there is still a lot of interest in Asian real estate, some investors have been sitting on the sidelines, waiting to see what happens. With a large amount of liquidity searching for visibility, we see this turning around dramatically in the second half of 2012. Across Asia Pacific, investors are focusing on the high yield markets of Japan and Australia, as well as the retail and logistics industries. In the last three months, over USD 2.5 billion has been allocated to Japanese logistics real estate, including a portfolio of properties sold by Jones Lang LaSalle for USD1.6 billion."
According to Alistair Meadows, Director of International Capital Group Asia Pacific, "'Asian investors continue to increase their investment activity in core European and US markets,' says the study. A cross-section of institutional and high-net-worth (HNW) investors from Korea, Malaysia, Singapore, Hong Kong, and Indonesia have expressed interest. Surprisingly, we're seeing a resurgence of Japanese investors on the international stage, with plans to expand their allocations to European and US real estate."
Volumes are strong in the Americas, while EMEA and Asia Pacific are declining.
Over the course of the year, the Americas saw a total of $29 billion in transactions. While down 6% from Q1 2011, due to the exceptional activity in Brazil last year not repeating this year, the commercial property market in the United States was up 15%, and Canada was up 52%.
In Q1 2011, the total amount spent in Europe, the Middle East, and Africa was $28 billion, down 27% from the previous quarter. Despite increases in transactional activity in both Japan and Hong Kong, the Asia Pacific region saw the largest year-on-year drop, with $20 billion in transactions, down 28 percent.
Inflows favor Europe, while outflows benefit Asia Pacific.
The bulk of inter-regional capital flows continue to be concentrated in Europe, with 67 percent of related transactions aimed at broader, more liquid markets. In Asia Pacific, $5.7 billion was taken out while just $400 million was allocated, continuing a pattern that began in 2011. A growing number of Asian pension funds are pursuing global diversification strategies outside of their home markets.
In the first quarter of 2012, London outperforms both New York and Tokyo.
In Q1 2012, London regained the title of most active global city from Paris, which had experienced significant investment activity in Q4 2011. This shift was prompted in part by strong support from Middle Eastern investors in the London market, as well as the expiration of a tax break in France. Thanks to large one-time transactions, Toronto and Oslo were new entrants into the top ten traded cities in Q1 2012.
Jones Lang LaSalle's Arthur de Haast, Lead Director International Capital Group, said, "Despite the slow start to 2012, we remain optimistic and keep our full-year estimates at $400 billion. While recent economic indicators from the United States are encouraging for global real estate, there is still much work to be done in the Eurozone as well. Government responses to ongoing economic instability will continue to dominate the year ahead, which global investors will be watching with interest. We also expect more private equity funds to target debt and distressed opportunities in the United States and Europe as banks begin to deleverage."
The office sector is liquid, while the manufacturing sector is gaining traction.
Due to continued interest in major global cities, the office sector was the most liquid, gaining 54 percent of all investment. This year, the recent trend of retail taking a larger share of overall transactional activity came to a halt.
The industrial sector drew a lot of attention, including major portfolio deals in Japan, and it accounted for 15% of all transactions, making it one of the busiest quarters on record. This quarter, on the other hand, is expected to be the lowest for both retail and hotel volumes, with $15 billion and $5 billion, respectively, due to a number of global transactions that have recently closed or are in the final stages of due diligence, which will benefit Q2 volumes.
Jones Lang LaSalle's Global Capital Markets Research Director, David Green-Morgan, said, "As yields in the office and retail sectors have compressed globally in the last two years, we expect investor interest in the industrial sector to continue during 2012. As pricing in prime markets remains strong, we foresee a closer examination of value-add opportunities, including previously overlooked secondary markets. Transactions will take longer, however, since many investors will conduct additional due diligence."