The relatively steep rise in international investment activity that generated optimism over the last four quarters appears to have leveled off, according to a new report by real estate services firm Jones Lang LaSalle. However, direct commercial real estate investment volume for the year is still projected to increase by 35% to 40% over 2009 levels.
Preliminary global direct commercial real estate investment volumes totaled $69 billion in the third quarter, a level similar to the second quarter of 2010, according to the report.
Direct commercial real estate investment volumes in the first three quarters of the year reached $202 billion compared with the $139 billion transacted over the same period of 2009. Volume for the full year is expected to reach up to $290 billion.
“A significant weight of equity capital is targeting prime assets across all sectors, but a scarcity of prime product for sale is constraining investment volumes,” says Arthur de Haast, head of the international capital group at Jones Lang LaSalle.
Product shortages also are resulting in yield compression and substantial rises in prime capital values across many of the world’s leading office markets, from London to Washington DC to Shanghai, he adds.
However, on top of this year’s growth in investment, further growth in volume is anticipated in 2011, says de Haast, with cash-rich investors widening their geographic search, pushing into value-added opportunities and eventually into secondary stock.
In the Americas, capital market momentum continued to build, with volumes up 12% in the third quarter. U.S. gateway cities saw a significant pick up in activity.
Brazil is the region’s most compelling growth market, and volumes have more than tripled through the first three quarters of 2010 as both cross-border and domestic investors are eager to capitalize on the country’s robust economic progress.
Investors are drawn both to emerging markets like Brazil and to the core coastal markets of New York and Washington, D.C., says Steve Collins, head of the international capital group in the Americas.
“A broad range of domestic investor types are now actively looking for prime product and in some cases, they’re now willing to review secondary markets to achieve higher return requirements,” adds Collins. U.S. transaction volumes are expected to total $85-90 billion in 2010, around 90% higher than 2009.
The Asia Pacific region reported a 12% quarter-on-quarter increase in investment volumes in the third quarter to $18 billion. Transaction volumes are expected to show 15% to 25% growth over 2009, reaching the $77 billion mark by year end.
In Europe, Middle East and Africa, a 12% decline in volume was reported in the third quarter, but full year volumes are expected to be 30% higher than in 2009.