REAL ESTATE - Disparities in economic growth and new regulations will change the contours of the real estate market in 2006, according to Ernst & Young’s 2006 Global Trends for Real Estate.
The report forecasts that the US real estate sector will see a $5bn investment boost to $20bn in 2006 – but it won’t be alone. The accountancy firm’s real estate experts also predict a rise in investment in Canada, Japan, Europe and Asia.
In the BRIC countries (Brazil, Russia, India and China), economic growth will attract investment from both developed and developing countries. “These are currently emerging economies with the potential to rival the US,” said the report. South Africa could also soon join the group of top-tier emerging economies.
In some European markets, long-awaited regulation will likely add to the trend towards divestment of property assets by non-property companies. Specifically, REITs-enabling legislation in the UK and Germany will boost these as investment vehicles after a September 2005 DTZ report discovered that non-real estate-related companies own a trillion euros of commercial real estate in these countries.
“By the end of 2006, the REIT world may well have run out of letters of the alphabet to label country REITs,” said the Ernst & Young report.
Meanwhile, in the US the number of public REITs going private will increase as a result of limitations to growing portfolios, discounted asset values, high running costs and less need for funding.
Finally, Ernst & Young forecasts that infrastructure will be “the next big thing” in real estate. As US developers jockey for opportunities brought about by “the Katrina effect”, in global markets the urgent need for modernisation (Central Asia), infrastructure (China) and transport networks (India) are driving investor interest.
The company’s infrastructure practice principle, Dale Anne Reiss, told IPE Real Estate: ‘You’re already starting to see alternatives to public infrastructure outside the US because infrastructure is too costly for public expenditure. Even in the US, citizens are coming around to the idea that there’s no such thing as a free lunch.”