Real estate investment transactions worldwide hit a record high of $600 bn (EUR 447 bn) in 2006, according to the new edition of DTZ's annual Money into Property research report. DTZ's research report examines record cross-border capital flows in 2006 and indicates that even more capital is looking to be invested in 2007. The real estate market is still characterised by a surplus of capital. At present there is $4 of capital chasing every $1 of investment product. DTZ estimates that there is $2.4 tln looking to be invested in real estate worldwide. The proportion of investors below their target real estate allocation grew from around a third in 2005 to half in 2006. Indeed, about 30% of capital raised over the last two years remains unspent.
Real estate investment transactions worldwide hit a record high of $600 bn (EUR 447 bn) in 2006, according to the new edition of DTZ's annual Money into Property research report. DTZ's research report examines record cross-border capital flows in 2006 and indicates that even more capital is looking to be invested in 2007. The real estate market is still characterised by a surplus of capital. At present there is $4 of capital chasing every $1 of investment product. DTZ estimates that there is $2.4 tln looking to be invested in real estate worldwide. The proportion of investors below their target real estate allocation grew from around a third in 2005 to half in 2006. Indeed, about 30% of capital raised over the last two years remains unspent.
Whilst direct investment purchases continued to show strong growth during the year, the increase in net capital flows into real estate was much more subdued, 5% compared with the 34% in the previous year. Net capital flow was around $860 bn in 2006. This suggests that it will be reasonable to expect a more moderate growth in investment transactions during 2007-08. One of the most important features of this activity is the continuing impact of globalisation on real estate. Cross-border activity now makes-up around 40% of investment purchases compared with 30% in the previous year.
The surplus capital continued to lead to a compression of yields in major markets. However, it is clear that the flow of capital in 2007-08 will be more strongly guided by the prospects for rental growth and well-being of local markets. DTZ's survey evidence suggests that investors are generally seeking to increase their exposure to real estate in 2007 and the recovering occupier markets, in Europe at least, indicates investment markets will remain buoyant in the short-term. However, the worldwide interest rate environment has become less benign, making the scope for further yield compression limited. With little room for yield compression, there is likely to be a shift towards return through rental growth where stock, location and demand will be fundamental.
