Capital flows

Direct investment in real estate is “almost back at the pre-crisis level” and increasingly the impetus is attributable to sovereign wealth fund and institutional capital, much of it from Asia.

This is one of the conclusions of Emerging Trends in Real Estate® Europe 2014 but the same sentiment could be made for the US and Asia Pacific.

Interviewees and respondents to the surveys conducted for all three Emerging Trends reports have proclaimed the continuing influence of Asian sovereign wealth funds with their flow of capital into core property, and latterly into secondary assets.

Asian capital – especially from China – is becoming more important to regional markets as each year goes by.

According to Real Capital Analytics (RCA), sales of large lot size commercial property around the world totalled over $1.1 trillion in 2013, surpassing the trillion dollar mark for the first time since 2007.

The two biggest sources were the US and China – with the latter accounting for 35 percent of global volume. A big part of this came from land transactions in China – sales of land rights rose 39 percent to $390 billion during the year – but the cross-border activity from Chinese investors was equally significant.

RCA calculates that Chinese investment in Europe alone tripled last year to €3.05 billion as developers and private individuals joined the country’s sovereign wealth funds in seeking to diversify their assets outside Asia.

It was also the year when Chinese insurers emerged as a global force. In May 2013, China’s regulator relaxed the rules restricting investment in overseas real estate by insurance companies. Barely a month later Ping An Insurance made its first overseas purchase with the €304 million of the Lloyd’s Building in London.

And the flow of capital from China continues. In January, China Investment Corporation paid Blackstone about €917 million for Chiswick Park in west London – already a contender for Europe’s largest transaction of 2014.

The ubiquitous presence of such Asian capital is one the key trends highlighted in the Emerging Trends series and is largely seen as a force for good in the marketplace.

Nearly 80 per cent of respondents to Emerging Trends in Real Estate® Europe 2014 believe that capital from the Asia will increase during 2014. The other big capital source is the Americas and here 67 percent of survey respondents expect a significant increase of funding in 2014. According to RCA, the US accounted for 27% of global deals in 2013, with volume of $301.6 billion, up 21 percent. In many respects, RCA argues, US property investment is “close to a full rebound from the global financial crisis”.

Similar sentiment is expressed in Emerging Trends US, where capital availability is expected to improve in 2014. According to survey respondents, availability of equity capital will increase the most from foreign investors, followed closely by pension funds and other large institutions; private equity funds, hedge funds, and opportunistic funds; and private local investors.