DTZ Research estimates that US$316bn of capital will be available to invest in global real estate in 2012, a 4 per cent decrease on its previous estimate at the end of 2010. This marks the end of the pattern of growth seen since the end of 2009 as funds are now deploying the capital raised.
DTZ’s ‘The Great Wall of Money’ report launched on Thursday, September 29, tracks new capital targeting direct real estate and the opportunities this capital is targeting. The only region to record an increase in newly available capital is the Americas where the total available has increased 3 per cent to US$114bn. In contrast, there has been a drop in new available capital in both Asia Pacific down 12 per cent (US$91bn) and EMEA down 3 per cent (US$111bn).
Anshul Jain, CEO, DTZ India said, “The reduction in new capital raising is not surprising given the renewed global economic uncertainty, while funds focus on putting existing capital commitments to work. Transaction levels in Asia Pacific increased significantly during 2010 and the first half of 2011. Funds have therefore been quick to deploy capital and taking advantage of the attractive pricing in the region. In EMEA the amount of newly available capital has remained broadly stable in the past two years yet the transaction activity has not matched the level available suggesting that funds targeting Europe are finding it harder to find suitable opportunities.”
“In the Americas the amount of capital available continues to increase, whilst transactional activity shows only modest growth, implying that higher levels of transactions have yet to come. In India, real estate ranks 4th amongst the sectors that attract FDI inflows. At a cumulative level, FDI in real estate has attracted close to USD 10.7 bn, over the past decade. However, over the past 2-3 years, the level of inflows has been declining because of overall perception of the industry taking a beating, land acquisition skirmishes and input prices going up thereby dampening the investor mood,” he added.
The majority of investors still prefer to focus on multiple property types, accounting for 80 per cent of available capital. This suggests investors have a preference for flexibility to deploy capital across different property types. Of funds targeting a single sector, retail remains the favourite target comprising 35 per cent of single property type funds with Industrial the second most favoured sector. These investment transaction flow trends are matched by our latest DTZ Fair Value Index scores across the regions, indicating the more attractive markets globally.
For the first time, single country funds are the dominant focus, accounting for 52 per cent of funds raised. This is up from 30 per cent in 2009. We expect that it is also reflective of sentiment post crisis where people prefer to invest in a particular market they know. Of funds targeting single countries, the US dominates the picture accounting for 51 per cent, followed by the UK at 10 per cent.
Looking forward, our analysis shows that the capital raised has the potential to lead to higher levels of cross border activity in all regions compared with recent transactional activity. In Europe cross border investment has the potential to reach 75 per cent compared to a third of activity in the past eighteen months. In Asia Pacific cross border investment could reach two thirds against 11 per cent in the past eighteen months. But, given the recent uncertainty in global markets, we expect levels of cross border activity to be more modest.
“Despite the relative attractiveness of property compared to other assets, the current economic uncertainties are likely to impact on new capital raising for some time to come. We are likely to see a decrease in capital available if these uncertainties persist as listed companies may delay new equity raising or IPOs and third party funds are less able to attract new investments. In addition, much of the available capital was raised before 2008 so fund managers will be under increasing pressure to put existing capital commitments to work as some fund investment periods near their close.”, said Anshul.
