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Investment Notes

The value of the global invested markets is set to grow by nearly 40 percent over the coming five years, from $ 9.8 trillion in 2006 to $13.7 trillion in 2011, according to a recent report by RREEF. Although this growth is far smaller than experienced during the bull run of recent years, the increase in the market by $4 trillion still represents significant growth.

The U.S. dominates the global invested market, at 48 percent of the total, followed by Europe and Asia with 33 percent and 19 percent, respectively. Within Europe, the western countries dominate, with the four largest markets of Germany, UK, France and Italy representing nearly 70 percent of the total. Despite the pace of the recent growth, Central and Eastern Europe account for only 5 percent of the value of the whole European market.

The pattern is similar in Asia where the more mature economies of Japan, Australia, Hong Kong and Singapore account for 80 percent of the total. Although China and India have grown dramatically in recent years, their invested stock still represents less than 10 percent of the regional total.

The major driver of the increased value is movement in real estate pricing with "appreciation" representing 70 percent of the change in the size of the market. For example, the American market is set to grow by $1.5 trillion, driven by appreciation at close to 60 percent of the total, according to RREEF.

The market cycle is expected to be more significant in Europe, with appreciation contributing to a large share of the increase in value in 2007 and 2008 before the market starts to slow. The relative importance of appreciation falls sharply from over 70 percent in 2007 to under 30 percent in 2009 due to the easing of rent growth and the upward movement in cap rates.

In Asia Pacific, the market is expected to grow by $1.3 trillion over the next five years, almost doubling the existing size of the market. Although this growth is driven by strong appreciation, new development also contributes another $460 billion. The scale of development activity and the maturing of real estate markets mean that emerging markets are set to grow most strongly over the coming five years. This is particularly the case in Asia where the fast pace of growth of China and India in particular mean that the market will grow by 160 percent.

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