Global CRE Investment Reaches Record $759B in 2007

Investment in commercial real estate across the globe rose $59 billion in 2007 to $759 billion, making it a record year for activity despite the dragging effect the credit crunch had on the market in the second half of the year, according to a report today from Jones Lang LaSalle. “2007 was a year of two halves. The very strong performance in the first half helped overall investment to exceed 2006–itself a record year,” Tony Horrell, CEO European Capital Markets at Jones Lang LaSalle, noted in a release. “The sub-prime crisis, ensuing credit crunch and re-pricing led to a marked slow down in the key markets of the U.K. and U.S. during the second half.” The first half of 2007 had record transaction volumes of $394 billion, but volumes dropped to $365 billion in the second half of the year as the credit crunch kept most of the highly leveraged investors out of the market, the report stated. The United Kingdom and United States represented more than half of the global transaction volumes. Jones Lang LaSalle said cross-border transactions–deals in which at least one buyer or seller is not from the country where the transaction is occurring–accounted for 46 percent of global transactions, compared to 43 percent in 2006. The highly leveraged investors who had been acquiring large portfolios and ‘mega-sized’ assets were mostly sidelined during the second half of 2007 because of reduced debt availability. Others waited to see if prices would come down. The report noted that due to the continued economic instability, the number of transactions, particularly the mega deals, is expected to be lower in 2008. “In 2008, we expect total global volumes to be below those achieved in recent years due to lower pricing and fewer transactions. Restricted debt availability and terms will reduce the number of portfolio and mega-asset deals,” Horrell said. “However, a large number of equity players are cash rich and in ‘wait and see’ mode, and we now see clear buying opportunities emerging in a number of markets.”Real estate fundamentals have been strong, so far, in the world’s major markets, with low vacancy rates and modest development pipelines, the Jones Lang LaSalle reported noted. That echoes statements made by industry leaders in a report from the Real Estate Roundtable and the FPL Advisory Group. As reported in today’s CPN, the executives felt that because there has not been overdevelopment in the commercial real estate market, the fundamentals of supply and demand should remain solid despite the turbulence in the residential real estate market. Overall transaction volumes in the Americas last year increased about 10 percent to $312 billion. Of that number, $291 billion in transactions occurred in the U.S., a 7 percent increase over 2006. Jones Lang LaSalle noted that REITs were involved in $171 billion worth of transactions in the first half of 2007 in the Americas. That activity decreased during the second half of the year with REITs completing $141 billion in deals. Investments in Latin America rose 90 percent to $6.9 billion, with $3.4 billion of that coming from cross-border activity. Canada had $14 billion in investments in 2007, 64 percent increase over 2006. Cross-border investment in Canada increased 83 percent year to year up to $4.2 billion. In Europe, deals slowed in the second half of the year but overall transaction volumes reached $327 billion for 2007. Cross-border transactions accounted for 63 percent of the deals, up slightly from 61 percent in 2006. Asia Pacific real estate markets were strong in 2007, particularly in Japan, which had about half of the transactions, according to the Jones Lang LaSalle report. Overall Asia Pacific volumes reached $121 billion, up 27 percent from 2006. Cross-border transactions represented 47 percent of the Asia Pacific deals, up from 32 percent the previous year.