JLL forecasts sun for 12 key RE markets

With $5 of investment chasing every $1 of product, 2007 should be another strong year for investment markets, according to Tony Horrell, ceo of European capital markets at Jones Lang LaSalle. 'Returns will continue to be attractive as investor interest in established markets remains strong and tomorrow's emerging markets get ever deeper and more transparent.'

Horrell singled out 12 key city markets for an upbeat forecast as part of a briefing at the MIPIM real estate fair in Cannes recently for its 'Global Risks and Returns: Navigating Tomorrow's Property Markets' report. The main findings were:

Delhi: Double digit rental growth and yields will attract increasing volumes of international capital to a market in the up-phase of its cycle. Strong potential returns need to be balanced by difficulty of market entry with foreign investment currently limited to development and joint ventures.

Frankfurt: Following hot on the heels of Hamburg and Munich JLL sees Frankfurt moving into a buy position in 2007: benefit from improving growth through 2008/09 and further yield compression.

Hong Kong: Pausing for breath in this cycle but future looks rosy on the back of the China dynamic.

Istanbul: Limited institutional and Grade A properties so JLL sees potential to create the Grade A stock the market requires. JLL also said there is greater opportunity for retail investment, with low stock levels and a strong demographic profile fuelling growth.

London: Well advanced in its cycle, returns continue to look attractive thanks to strong rental growth but JLL does not see any potential for further yield compression. Investor demand will stay strong.

Mexico City: Forecast rental growth of at least 5% per annum and further prime yield compression of 9% as the market recovers from a period of oversupply.

Moscow: The most dynamic market in Europe with great returns in 2006 and more in prospect going forward. Potential risk of market becoming oversupplied though current conditions good in the short term.

New York: With positive economic news and no more than a soft landing, market conditions in New York are likely to support more rental growth and double digit returns.

Paris: An improving market with prime rents expected to grow by at least 10% in 2007 and attractive returns. Vacancy rates in Paris are amongst the lowest in Europe and office demand is high.

Shanghai: One of the world’s most dynamic leasing and development markets will continue to benefit from China’s extraordinary economic growth and generate good double digit returns.

Sao Paulo: Latin America’s commercial capital is fast emerging as a new location for investor capital in Latin America. A market on the up phase of its cycle, but supply is expected to respond rapidly and vacancy rates are high.

Tokyo: Offering strong yield spreads, this is a dream market for highly leveraged investors and financial engineers. Rental growth continues and the Bank of Japan maintains its low interest rate environment.