Global property investment may rise 26%

Global investment in real estate may increase 26% to $600 billion this year, fueled by companies such as private equity firms seeking higher returns, according to Jones Lang LaSalle Inc. In the H1, spending on property climbed 30% to $290 billion, Jones Lang said in a report published yesterday. The money invested in the Americas gained 27% to $129 billion, while the value of transactions in Germany and Japan more than doubled. „I can't see anything on the radar screen to derail demand,” said Tony Horrell, head of Jones Lang's international capital group in London, in an interview. Real estate funds may raise a record total of $65 billion this year, a jump of 44% from 2005, London-based Private Equity Intelligence Ltd. said Sept. 8. In the H1, the largest single property transaction was by Goldman Sachs's Whitehall Fund, which paid $5.5 billion for 51% of a venture with KarstadtQuelle AG that owns 85 department stories, Jones Lang said. Morgan Stanley, the largest property owner among investment banks, said this week it raised $1.75 billion for the bank's fifth US fund to invest in commercial and residential developments and real estate companies. Last week, the firm bought 49% of the commercial and residential real estate unit of Duke Energy Corp., the largest US utility owner. Since 1991, Morgan Stanley has acquired $87.7 billion of real estate.

Real estate investment is becoming increasingly global, with $128 billion, or 44% of the total, spent on cross-border transactions in the H1, said Jones Lang, the world's second-largest publicly traded real estate brokerage. That's 69% more than a year earlier. Property sales involving investors from outside the region where the asset is located rose 68% to $90 billion in the H1, or 31% of all spending, Jones Lang said. „Across the world, fund managers are receiving record fund inflows as populations in developed countries approach retirement age,” said Horrell. „Many of these funds are attracted by real estate's strong stable returns.” Since 1995, real estate funds have been the best performing private equity category in six years out of nine, with annual returns of between 8% and 20%, Private Equity Intelligence said last week.

The US accounted for 43% of all investment in the H1 compared with 45% a year earlier. The UK, home to the world's most expensive offices, slid to a 14% share from 20% in 2005. Inter-regional investment in the Americas more than doubled to $33.5 billion, with Middle Eastern investors, buoyed by surging oil prices, accounting for 14% of international spending. The US accounted for 96% of all investment in the region, with New York, San Francisco, Chicago and Boston the most popular cities for non-US purchasers. Global investors spent more than $9.5 billion on US hotels in the H1, in addition to „sizeable” office and industrial property purchases, said Jones Lang. The share of investment going to Germany doubled to 8%, with global investors buying more than 40% of all the German commercial real estate that was traded in the H1. Transactions in Germany in the H1 almost equaled the amount for the whole of 2005 as German investors sold a net $24 billion of assets. Property prices in Europe's largest economy are relatively low because the market has lagged behind others in the region.

„Germany seems to be a recovery play,” said Horrell. „It's the new love story of Europe at the moment.” Japan accounted for 8% of all real estate investment, up from 5% a year earlier. Investment in Japan accounted for half of all spending in Asia compared with 35% in the same period in 2005. Investment in Asia as a whole rose 40% from a year earlier, compared with 30% in Europe, the report said. Jones Lang's total excluded the $30 billion spent privatizing publicly traded real estate investment trusts such as Trizec Properties Inc., as well $16 billion on developments funded in advance and more than $60 billion on residential apartments. (Bloomberg)