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Global Commercial Property Investment at $75 Billion in Q1, Down 23% From Last Year
By Michael Gerrity | April 11, 2012 8:30 AM ET
Based on preliminary direct commercial property transaction volume figures released this week by Jones Lang LaSalle Capital Markets Research, it was a subdued first quarter of 2012 with recorded volumes down compared to the same period in 2011.
All major commercial property markets globally recorded a quieter start to the year after a very active 2011, particularly in the final quarter. Also, substantial one-off transactions in established markets, such as the sale of the Trafford Centre Shopping Centre in the United Kingdom for US$2.6 billion that enhanced volumes in Q1 2011 were not repeated in Q1 2012, leading to a fall in total volumes recorded.
The decline was also due to sustained economic pressures restricting the availability of debt finance, especially for new borrowing.
Key Report Highlights:
- Preliminary Q1 2012 volumes down 23% on Q1 2011 at US$75 billion.
- However, real estate fundamentals remain attractive despite continuing economic uncertainty.
- Total volumes in Q4 2011 revised up to US$112 billion, making it the most active quarter since Q2 2008.
- Full year 2011 volumes also revised up to US$418 billion, the fourth highest year on record.
- Full year 2012 forecast remains consistent with 2011 at circa US$400 billion.
Arthur de Haast, Head of the International Capital Group at Jones Lang LaSalle tells World Property Channel, "Whilst volumes are down in Q1 2012 and the economic backdrop remains uncertain, the underlying attractiveness of real estate continues due to strong demand and sound fundamentals. The final quarter of 2011 was one of heightened uncertainty in Europe, but reassuringly policy makers realized the seriousness of the situation and took the appropriate action, which helped to stimulate activity across the continent."
"Volumes and sentiment in the US continues to improve with growth increasing by 16% on a year on year basis in Q1 2012, on the back of improving economic indicators. Canadian and Mexican volumes increased more than 50% over the same period."
"2011 was the second strongest year on record for Asia Pacific with annual volumes at US$98 billion. Despite a slowdown in Q1 2012 compared to Q1 2011, we expect performance to improve during the coming months as monetary and fiscal policy is gradually loosened around the region."
The desire to close deals in the final quarter of 2011 was evident with a further upgrading of the full year numbers. Such was the extent of activity in 2011 as a whole that it will take time for that momentum to build again in 2012.
David Green-Morgan, Global Capital Markets Research Director at Jones Lang LaSalle also commented, "Commercial property continues to draw capital and interest from institutional investors, increasingly through allocations diverted away from equities, commodities and other asset classes. This trend will continue as the attraction of fixed assets increases in line with the predicted rise in global inflation over the medium-term. Whilst the global economic road ahead might not be completely smooth, investor sentiment remains positive. The on-going debt issues in commercial property will continue to pose problems for some and present opportunities for others all of which will contribute to transactional activity."
Mr. de Haast concluded, "Whilst the prime, major cities of the world such as London and New York will continue to attract large amounts of capital we expect investors to examine more closely the increasing number of opportunities in secondary markets as pricing in this area continues to adjust."
While investors remain somewhat cautious most are continuing to execute their strategies albeit with longer transaction times and more detailed underwriting. Given the weight of capital available Jones Lang LaSalle expects full year 2012 transactional volumes to be consistent with 2011 at circa US$400 billion, with a number of portfolio deals globally expected to boost activity. 2012 is likely to be another year dominated by policy responses to changing economic conditions. For activity to materially surpass 2011, more available debt would be needed globally.