JLL sees 'flight to quality' in European markets

Global direct real estate investment reached a record $ 382 bn (EUR 277 bn) in the first half of 2007, provisional figures from Jones Lang LaSalle show. This represents a 16.6% increase on the same period last year, and surpasses global real estate investment for the whole of 2003, JLL said.

European investment volumes rose 4% to $156.6 bn, with the UK, Germany and France accounting for over two-thirds of the total. The UK market experienced a strong quarter for trophy assets, with six single assets valued at over $1bn changing hands, up from one in full-year 2006. Prime trophy assets also attracted very competitive bidding in Germany and France. US, Irish and Spanish investors were dominant cross-border investors. German funds made a strong return to the European investment markets, many having significant liquidity after heavy selling activity in 2006. Europe is experiencing a 'flight to quality' in many markets, with the pricing for some secondary assets now considered too close to that of prime assets, JLL said. Many investors increasingly favour the European mainland over the UK as interest rates approach 6% in the latter market. Emerging Europe remains popular with opportunistic investors.

Investment in Asia Pacific rose 12% to $55 bn, with a significant proportion of the increase representing additional cross-border investment. Japan, China and Singapore represented the strongest real estate markets in the region. Singapore became 2007's hottest global market, acoording to JLL, with prime capital values increasing by 50% in the first half, fuelled by astounding rental growth and yield compression. In the Americas, total investment surged 32% to $170.7 bn, primarily driven by the trading (and re-trading) of prime US properties acquired as a part of private equity-led REIT privatizations and subsequent portfolio break-ups.

'For the remainder of 2007, Jones Lang LaSalle expects global real estate markets to remain strong, however we expect investors to become increasingly selective about markets,' said Tony Horrell, CEO of Jones Lang LaSalle's European Capital Markets Group. 'Globally we continue to see a weight of money targeting the sector - evidenced by the record real estate funds raised by Private Equity in recent months. Cross-border investment remains strong - driven by Global, Middle East, North American, Irish, German and Australian funds.'