Available property investment capital targeting Asia up 29%

DTZ Research predicts 22% increase in available capital for global real estate investment next year to US$281bln

DTZ Research, part of global real estate services firm DTZ, estimates that US$281bn of capital will be available to invest in global real estate in 2011, a 22% increase on DTZ’s previous estimate in December 2009.

The latest ‘The Great Wall of Money’ report launched on Wednesday, 13 October 2010, analyses the capital being raised by an extensive range of investor groups. The greatest increase in available capital is forecast to be focused on the US (US$97bn) representing a significant 54% increase on our December 2009 estimate. This is in line with the DTZ Fair Value Index™ score of 89 which shows most markets in the US now offer an attractive opportunity to investors. A further US$71bn is targeting the Asia Pacific region, an increase of 29%. Whilst the majority of available capital continues to target Europe (US$112bn), this is unchanged from our December 2009 estimate, according to a DTZ Research report.

Nigel Almond, Associate Director of Forecasting & Strategy at DTZ and author of the report comments: “The current attractiveness of the US is in stark contrast to the situation a year ago. Most US markets were cold, offering expected returns below risk adjusted required returns. This opportunity remains largely unexploited to date, since transaction volumes in the US have not yet seen the levels witnessed in Europe and Asia Pacific.”

The DTZ report highlights the return of quoted and private property companies to the market with publicly listed companies now comprising 17% of available capital, compared to 4% reported in December 2009. Capital from private property companies and individuals now accounts for 14% of available capital, rising from 3% previously. Third party managed funds, whilst still accounting for the majority of available capital, have decreased their share from 77% to 49%.

DTZ Research data proves that diversification by both geography and property type continues to be a priority for investors. In line with the previous analysis, the majority of capital is due to be invested in multiple countries.

However, this share of capital has decreased from 70% to 56%, highlighting a growing focus on single country investments. Of those investing in single countries, there has been a significant increase in funds targeting the US. The US now accounts for 51% of available single country focused capital.

The research also reveals that both Asia Pacific and Europe will continue to be targeted with a higher share of capital, compared to the amount that has been raised in these regions. This suggests an increase in cross-border investment in 2011. The recovery of cross-border investment flows would be from a low base given the significant retrenchment in recent years.

During the first half of 2010 global investment volumes increased substantially to US$133bn, double its level in the same period of 2009. Growth in Asia Pacific tripled, rising to US$64bn compared to the same period last year. European investment activity totalled US$54bn representing a 86% increase. The US however, has yet to see an increase in transactions with volumes remaining flat at US$15bn in the same period.

Hans Vrensen, Global Head of DTZ Research, said: “With the current levels of capital targeting real estate markets, we anticipate an increase in global transaction volumes during 2011. There have been significant changes in the targeting of this available capital over the past 9 months. As a result, we expect US volumes to pick up more substantially than in Asia Pacific and Europe.”

EMEA
Magali Marton, Head of DTZ CEMEA Research, said: “We expect that the total of amount of available investment capital in Europe to remain unchanged from the 2010 estimate of US$112bn. Although this is a larger share of available capital than Asia Pacific or the US, the Europe DTZ Fair Value Index™ score of 49 suggests that the attractiveness of Europe to investors remains unmoved from December 2009, with European markets offering similar levels of return.

“Of the single country funds, the UK is the most targeted country for investment within the region followed by the larger liquid markets of France, Germany, Sweden and Italy. With no new increase in available capital targeting Europe we expect there to be less growth in transaction volumes during 2011 relative to other regions. However, the substantial increase in European investment volumes in the first half of 2010 suggests a strong bounce back is already underway, assisted by the recovery in values. With more capital predicted to be generated from outside investment than generated regionally we anticipate a continuation of cross-border investment in Europe.”

Asia Pacific
David Green-Morgan, Head of DTZ Asia Pacific Research, said: “The 29% increase in the amount of available capital targeting Asia-Pacific forecast in the report correlates with the Asia Pacific DTZ Fair Value Index™ score of 67 showing that the region is more attractive to investors than this period last year. Of the single country funds, the emerging markets of China and India, along with the more mature market of Australia, are the main targeted countries in the region. We expect the large increase in available capital targeting Asia Pacific to have a positive impact on transaction volumes during 2011 with increasing cross border activity.”