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Less capital available for global real estate investment, research shows

Capital available for real estate investment in 2012 has fallen to US$316 billion from US$329 billion at the end of 2010, the first reversal of growth since 2009.

The research from DTZ also shows that a geographic focus to specific counties has continued to increase with 52% of funds focussed on a single country up, from 30% in 2009.

However, based on recent volumes and available capital targets, DTZ predicts higher levels of cross border investment in 2012, particularly in Asia Pacific.

The report tracks new capital targeting direct real estate and the opportunities this capital is targeting. The only region to record an increase in newly available capital is the Americas where the total available has increased 3% to US$114 billion. In contrast, there has been a drop in new available capital in both Asia Pacific down 12% to US$91 billion and EMEA down 3% to US$111 billion.

‘The reduction in new capital raising is not surprising given the renewed global economic uncertainty, while funds focus on putting existing capital commitments to work,’ said Nigel Almond, associate director of forecasting and strategy at DTZ and author of the report.
‘Transaction levels in Asia Pacific increased significantly during 2010 and the first half of 2011. Funds have therefore been quick to deploy capital and taking advantage of the attractive pricing in the region,’ he explained.

‘In EMEA the amount of newly available capital has remained broadly stable in the past two years yet the transaction activity has not matched the level available suggesting that funds targeting Europe are finding it harder to find suitable opportunities.

‘In the Americas the amount of capital available continues to increase, whilst transactional activity shows only modest growth, implying that higher levels of transactions have yet to come,’ he added.

The majority of investors still prefer to focus on multiple property types, accounting for 80% of available capital. The report says this suggests investors have a preference for flexibility to deploy capital across different property types.

Of funds targeting a single sector, retail remains the favourite target comprising 35% of single property type funds with Industrial the second most favoured sector. These investment transaction flow trends are matched by the latest DTZ Fair Value Index™ scores across the regions, indicating the more attractive markets globally.

For the first time, single country funds are the dominant focus, accounting for 52% of funds raised. This is up from 30% in 2009. ‘We expect that it is also reflective of sentiment post crisis where people prefer to invest in a particular market they know. Of funds targeting single countries, the US dominates the picture accounting for 51%, followed by the UK at 10%,’ the report says.

‘Looking forward, our analysis shows that the capital raised has the potential to lead to higher levels of cross border activity in all regions compared with recent transactional activity. In Europe cross border investment has the potential to reach 75% compared to a third of activity in the past eighteen months. In Asia Pacific cross border investment could reach two thirds against 11% in the past eighteen months. But, given the recent uncertainty in global markets, we expect levels of cross border activity to be more modest,’ it adds.

According to Hans Vrensen, global head of DTZ Research, despite the relative attractiveness of property compared to other assets, the current economic uncertainties are likely to impact on new capital raising for some time to come.
‘We are likely to see a decrease in capital available if these uncertainties persist as listed companies may delay new equity raising or IPOs and third party funds are less able to attract new investments. In addition, much of the available capital was raised before 2008 so fund managers will be under increasing pressure to put existing capital commitments to work as some fund investment periods near their close,’ he added.