Strong showing in global commercial real estate market

By Ferdinand Mwongela

Global commercial real estate markets continued to rally in 2013 with transaction volumes in the first half of the year up eleven per cent on a similar period last year.

According to Jones Lang LaSalle capital markets research, direct commercial real estate investment volumes in the second quarter of 2013 reached $114 billion (Sh9.8 trillion) globally, up four per cent on quarter two last year and up nine per cent on quarter one of 2013.

“The volatility we have seen in equity and bond markets over the last quarter has further added to the attraction of commercial property as an asset class. So far, the rising cost of global real estate debt has had little effect on transaction volumes with most deals funded on modest loan to value ratios,” said David Green-Morgan, Global Capital Markets Research Director at Jones Lang LaSalle said. 

Optimistic view

Green-Morgan said that unless there is a substantial rise in the cost of debt, it is only likely to have a marginal impact on transactional volumes for the remainder of the year.

The Jones Lang LaSalle forecast showed that continued strong growth in quarter two 2013, has kept global volumes above $100 billion (Sh8.6 trillion) for five consecutive quarters, an evidence of increasing investor confidence in commercial real estate, despite volatility in equity and bond markets.

The report shows that Asia Pacific and Europe, the Middle East and African markets (Emea) recorded strong growth over the half year with eleven per cent and 12 per cent year-on-year increases in volumes respectively.

Quarterly volumes in Asia Pacific remained flat both quarter on quarter and year on year, quarterly volumes in Emea were flat year on year, but down 13 per cent quarter on quarter following a buoyant start to 2013.

At the same time, the Americas saw a 39 per cent rise in transaction volumes in the second quarter of this year, compared to the first quarter. It reached $52 billion (Sh4.47 trillion), up eleven per cent on last year’s performance.

The first half of 2013 came up to $90 billion (Sh7.74 trillion), equating to a nine per cent increase over the same time last year. Quarterly volumes in Mexico and Canada rose significantly to keep pace with the continued acceleration in the US market.

On the other hand, the largest markets globally continued to see growth over the first half of the year with Japan going  up by 50 per cent, Australia ten per cent, UK four per cent, Germany 43 per cent and France up by  six per cent, compared to the first half of last year.

China was the exception, recording a 20 per cent fall in transaction volumes in the first half, however, a stronger performance is expected in the second half of the year. Jones Lang LaSalle’s forecasts for the remainder of 2013 remain at between $450 and $500 billion (Sh38.7 trillion and Sh43 trillion).

“With global volumes up eleven per cent on this time last year and the second half of the year traditionally busier than the first, the global investment market is on track to surpass last year’s volumes,” says the forecast.

Direct investment

“Over the past two to three years, we have predicted that more capital would be allocated to direct investment in core property assets; this is now materialising,” said Arthur de Haast, Lead Director, International Capital Group at Jones Lang LaSalle.

He added: “Institutional, private equity and high net worth individual investors are consistently bidding on opportunities around the world.  In addition to this, investors have started to diversify their portfolios, both in terms of risk and geography, looking for more value-added and secondary opportunities; a trend we expect to continue over the short to medium term.”

The findings, while still optimistic, appear more cautious than estimates put forward by a Cushman and Wakefield report released earlier this year, which showed that investor confidence could push volumes this year past the $1 trillion (about Sh86 trillion) this year. “Volumes could increase by 14 per cent this year to exceed the $1 trillion mark for the first time since 2007,” said the report.