GLOBAL - Pension fund cash will continue to pour into European real estate at least to the end of the year but there is fresh interest in the Asian market, according to preliminary figures published by Jones Lang Lasalle (JLL).
Direct property transactions in Europe reached €116bn in the first half of 2007 – a 4% increase over the same period in 2006.
Growth was most notable in smaller markets, such as Finland, and emerging Eastern European markets as investors chased yields that are increasingly scarce for prime real estate in more mature markets.
Equally notable was the shift out of UK real estate as figures reflect earlier forecasts of a slowdown in leveraged investment in the UK property market, partly as a result of rising interest rates (IPE Real Estate, 9 July 2007).
Although UK transactions for the first half totalled €27bn – equal to those for the same period the previous year and at least half driven by US and Irish investors – JLL identified fewer bidders attracted to compressed yields.
However, JLL last week forecast continued robust activity non-leveraged investors, including indirect funds with "significant volumes of capital" and capital from China, Japan and the Middle East.
Renewed emphasis on indirect investment will come at the expense of current equities allocations rather than representing a move away from direct real estate investment, according to Padraig Brown, head of global strategy and research at JLL’s International Capital Group.
Longer term, the firm expects a shift towards Asia, Tony Horrell, CEO of European capital markets, told IPE Real Estate.
"It’s a trend out there that’s gaining momentum. It’s mostly coming from global funds launched by US investment banks, with money from European pension funds, raised to invest in Asia in search of greater returns," said Horrell.
"Asian markets are not as well developed as European ones but they are the next big thing," he added.