Events

March 13-15, MIPIM
Palais des Festivals in Cannes

Employs 1,985 professionals.

45 offices; a presence in 24 countries.

5,000 customer relationships.

$54 billion in total assets.

$71 billion assets under management.

Cross-Border Capital Flows: A Free-for-All

Global flows of capital investment in commercial real estate have followed well-established routes, just as ocean currents move warm water to the North Atlantic, for centuries international real estate capital has flowed continuously, from Europe to North America.

That pattern began to reverse in the early years of this decade, as the flow of money from U.S. investors into property in the United Kingdom, Western Europe and Eastern Europe began to outpace the westward movement—even as total money flows in both directions hit new records.

In 2005, North American investors bought and sold $15.4 billion worth of commercial real estate in Europe, while European investors did $12.4 billion worth of CRE deals in North America. In 2006, North Americans, including Canadian investors, funded $28.8 billion worth of CRE deals in Europe, while Europeans were involved in $21.2 billion worth of North American deals, according to Jones Lang Lasalle.  (For an overview, click on the image below to enlarge the map).

But the bigger story is in new patterns of investment: Cross-border capital flows in commercial real estate are now beginning to look like a free-for-all, as investors scan the globe for yield. Middle Eastern and Asian investors are scouring Europe for deals. Europeans  are shipping money to India, Asia and Latin America. “It’s now going from everywhere to everywhere, in home markets and in developing markets where there is economic growth, greater political and currency stability and natural resources,” says Jonathan Kern, global CEO, GE Real Estate.

Jones Lang, which next week releases its annual report on global flows at the MIPIM property show in Cannes, pegged the total volume of cross-border deals in CRE at a staggering $288 billion, up 74% from $166 billion in 2005. Overall, cross-border deals represented 42% of all transactions tracked by the broker, up from 34% in 2005.

Investors from the Asia Pacific region, for example, did $13.8 billion in deals in North America and $5 billion in Europe in 2005 -- and $10.1 billion in North America and $10.9 billion in Europe last year. Middle East oil weaIth has been  transformed into commercial property in Europe and the United States, since 2005.

Even as prices have risen and cap rates have converged around the globe, investors continue to seek out real estate investment opportunities, pushing into new regions and new property types. And there is no sign of the flow slowing, because of a “huge overhang of investment capital,” says Pádraig Brown, associate director, global strategy and research, International Capital Group for JLL, in London. Brown figures that for every $1 worth of assets that come to market there are $5 of investment capital looking for a home. That’s up from $3 a year ago.

Not surprisingly, China racked up huge growth—a 69% jump in deal volume to $9 billion.

Australian property funds, which have been in the forefront of global deployment of capital, shifted a bit in 2006, reducing their new commitments in the U.S. and upping their bets in Europe. Overall, Australian property funds purchased $12 billion of assets outside their home market, up from $10.9 billion in 2005.

Market watchers see no sign of global investors reducing commitments to the U.S. overall, despite heady sale prices for top-grade properties.  “As one foreign capital source slows down for various reasons, another foreign capital source steps up to fill that void,” says Dan Fasulo, managing director, Real Capital Analytics, a New York-based research firm.