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Global commercial property investment up by 10 per cent

Monday, July 16, 2012

Investment activity in commercial property looked positive across the globe in the second quarter of 2012, according to Jones Lang LaSalle.

Comparing data from over 60 countries, JLL's report shows that volumes rose by 10 per cent upon the first quarter, with investors continuing to move away from equities and towards other assets.

Asia Pacific, Europe, Middle East & Africa, and the Americas all recorded an increase in activity in the second quarter of the year. However, on a year on year basis the picture is more mixed with only Asia Pacific showing growth in investment volumes, up by 21 per cent compared to the same period in 2011.

In contrast to the fragile market of the first half of 2010, investor sentiment is much more optimistic and this is reflected in volumes being over 50 per cent higher in H1 2012.  However, the positive attitude of the first half of 2011, when government stimulus was in full swing globally, has not been sustained in the face of continuing debt and economic growth concerns and volumes are down 9 per cent on H1 2011.

Clearly we remain in a challenging environment.  However, the demand for good quality, well located direct commercial property remains high globally as evidenced by the rising transactional volumes this quarter," commented Arthur de Haast, Head of the International Capital Group at Jones Lang LaSalle. "In the light of ever diminishing yields from other asset classes the potential income returns offered by core, prime commercial property are attractive to many investors.  Even in Europe, the eye of the economic storm at present, we continue to see strong demand for the best properties as witnessed in the recent purchase by the Malaysian pension fund PNB of two London properties from the KanAm portfolio above the reported book value of €590m."

One consistent feature of the investment market over recent times has been the influence of cash rich buyers in core, prime locations.  With further news this quarter of banks exiting the commercial lending business, and new entrants only able to provide a fraction of the level required, private equity, institutional and high net worth purchasers continue to dominate purchasing activity at the expense of distressed vendors and developers in particular.

David Green-Morgan, Global Capital Markets Research Director at Jones Lang LaSalle commented: "While volumes have improved in the second quarter and the pace of activity is broadly in-line with that of 2011, the investment market globally continues to evolve with new equity rich entrants attracted by the immediate income return as well as the longer term capital growth.  We expect the investment market to continue to be dominated by those groups with access to equity and only a minimal or no need for debt financing, as evidenced in Paris by the Qataris buying retail and office assets or new market entrants such as Norges continuing to increase their direct real estate exposure across international markets."

Concluding, Mr de Haast added: "For the last two years core, prime locations have been performing well and this has attracted the vast majority of investment capital.  This weight of capital has compressed yields in prime markets globally whereas secondary markets continue to see yields move out, and the gap between the two has grown ever wider.  While the economic outlook remains precarious the pricing in many secondary markets will eventually approach a level which will trigger more activity."

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