Jones Lang LaSalle Finds Global Investment Capital Leans Towards Real Estate
Report shows commercial real estate direct investment volume will more than
double to US$1 trillion by 2030; Asia Pacific region leads investment growth
DAVOS-KLOSTERS, Switzerland, Jan. 23, 2013
DAVOS-KLOSTERS, Switzerland, Jan. 23, 2013 /PRNewswire/ --As business and
political leaders discuss global challenges at the World Economic Forum
annual meeting in Davos-Klosters, Switzerland, a new report by Jones Lang
LaSalle (NYSE: JLL) reveals that investors are already responding to shifting
economic conditions by funnelling more capital into commercial real estate,
particularly in the Asia Pacific region. In fact, the firm estimates that the
direct commercial real estate transactional market will exceed US$1 trillion
per annum by 2030, compared with 2012 volumes of nearly US$450 billion .
"Capital growth ambitions that dictated many investment decisions before the
financial crisis have given way to a global hunt for secure income streams in
a low-interest-rate environment," said Colin Dyer, President and CEO of Jones
Lang LaSalle. "While real estate asset values have shown no immunity to the
financial shocks of recent years, real estate nevertheless is emerging as a
preferred option for many investors."
The report, "The Advancement of Real Estate as a Global Asset Class," finds
oAsia Pacific has outpaced other regions in real estate activity since the
global financial crisis, achieving commercial real estate investment
volume in 2012 equal to 77 percent of the previous peak reached in 2007.
The Americas have only reached 62 percent of that level, while Europe's
investment volume is 46 percent of its peak amount.
oThe impact of the growing pool of capital seeking exposure to real estate
can be substantial. A 1.2 percent reallocation to real estate by the 30
largest sovereign wealth funds would increase capital allocation by US$50
billion, equivalent to the entire Sydney CBD office market.
Investors are targeting a limited number of super-prime assets, chiefly
office and retail buildings in major gateway cities, that have emerged as the
most desired assets for some institutional investors intent on owning the most
stable, best-located assets, fully leased to the most desirable tenants.
Competitive bidding has driven prices on many of these properties up to and
beyond pre-crisis levels.
Investment portfolios shift toward real estate
Across eleven major global markets, spreads between real bond rates and
prime-grade office market yields are on average 195 basis points wider now
than in the fourth quarter of 2007, JLL found. Those higher returns are
convincing many investors to increase exposure to real estate.
"With sovereign bond market yields at multi-decade, and in some cases
multi-century, lows, and with the outlook for capital growth subdued, yield
becomes a core driver of investment returns," said Dyer. "The spread between
real estate and sovereign debt yields remains high, offering generous
compensation to investors for the additional risk associated with real
To a lesser extent, increased allocations to real estate also reflect investor
efforts to reduce risk by diversifying away from the traditional portfolio
mainstays of bonds and equities, JLL's report concludes.
Asia Pacific real estate takes the lead
The Asia Pacific region is emerging as the long-term winner in the global
contest for investment capital, boosted by the rise of domestic pension funds
and private wealth. Since 2008, strong economic growth that contrasted with
recessionary contraction in Europe and North America has fuelled real estate
Operational challenges, low levels of liquidity and in some cases undeveloped
capital markets currently constrain institutional investment in the region,
which partly explains why most western institutions are underweighted in the
Asia Pacific region relative to the size of its real estate markets. Over the
long term, however, JLL expects relative portfolio weightings to move in
favour of the region as high rates of saving, rapid urbanisation, the
inexorable rise of the middle classes and evidence of improving transparency
increase investor confidence and interest in the region.
More trends explored
JLL's report identifies several other trends emerging around the globe,
including efforts to increase transparency, the rapidly expanding practice of
sale-leasebacks in Asia, and the increasing pace of renovations or
replacement of aging real estate to better meet the needs of modern commercial
Read first-hand, daily news from the World Economic Forum annual meeting on
the Notes from Davos blog.
Visit Jones Lang LaSalle's Media Center for the latest and most up-to-date
news on the commercial real estate industry.
About Jones Lang
Jones Lang LaSalle (NYSE: JLL) is a financial and professional services firm
specializing in real estate. The firm offers integrated services delivered by
expert teams worldwide to clients seeking increased value by owning, occupying
or investing in real estate. With 2011 global revenue of $3.6 billion, Jones
Lang LaSalle serves clients in 70 countries from more than 1,000 locations
worldwide, including 200 corporate offices. The firm is an industry leader in
property and corporate facility management services, with a portfolio of
approximately 2.1 billion square feet worldwide. LaSalle Investment
Management, the company's investment management business, is one of the
world's largest and most diverse in real estate with $47 billion of assets
under management. For further information, please visit
SOURCE Jones Lang LaSalle
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