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08. März 2012 
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Available capital for global real estate investment down by 6% due to lower gearing
DTZ Research estimates that US$298bn of capital will be available to invest in global real estate during 2012, a 6% fall on DTZ’s previous mid-2011 estimate* . It also represents a 9% fall on the peak recorded a year ago. For the first time, there was a fall in new capital in all three regions. The latest ‘The Great Wall of Money’ report launched today, tracks new capital targeting direct real estate and the investment opportunities this capital is targeting.
Nigel Almond, Associate Director of Forecasting & Strategy at DTZ and author of the report comments: “The reduction in the amount of capital we estimate to be available for investment in 2012 reflects the current environment of less available and more expensive debt. The amount of equity we estimate available for investment actually grew 4% to US$139bn. But, this was more than offset by a 12% reduction in debt available to US$160bn. Therefore we are not surprised to see funds reduce their target gearing as they seek to place more equity into deals.”
Existing funds have started to put capital to work reducing the remaining raised capital for deployment in 2012 from US$285bn to US$246bn over the last six months. In a reversal of recent trends the report highlights a marked increase in new fund raisings. On the other hand, funds are targeting to raise up to US$53bn in new capital for deployment in 2012, a significant increase on the US$30bn recorded six months ago.
Comparing the domicile of the investor and the target geography indicates potential changes in cross border activity. The data suggests a higher level of cross border investment into Asia Pacific. 33% of investment could come from outside the region (inter-regional) with further 30% from within the region (intra-regional). This would represent a dramatic shift on the 10% cross border investment in 2011.
EMEA is set to attract the second highest level of inter-regional cross border activity at 19%. In contrast, activity in the Americas is set to remain dominated by domestic investment at 86%.
Hans Vrensen, Global Head of Research at DTZ comments: “The regions targeted by most investors are broadly consistent with our Fair Value Index scores. The US and Asia Pacific regions contain a larger number of attractive markets and make up 64% of targeted capital. But, we have not seen a corresponding decline in the capital targeting EMEA, despite markets becoming less attractive over the last few years. This implies funds are over-allocating capital to the EMEA region. This might be due to risk aversion with part of the investor base, as well as delayed deployment of raised capital targeting the region, as supported by transaction flows.”
Available capital could be at risk in future years, as more funds will reach the end of their investment period. This would require them to return capital commitments to their end investors, which would in turn endanger the expected fee income for the fund. To avoid this from happening, we expect that managers will seek to deploy this capital before this date. We expect that this will be a positive technical factor for increased transaction volumes in the next few years.
Hans Vrensen continues: “55% of available capital at risk is sitting with opportunity style funds, due to when they raised their capital originally. Given their broader investment focus, we expect that these funds will be looking to acquire bank loan portfolios with a strong sense of urgency.”
* See DTZ Insight The Great Wall of Money, September 2011
Nigel Almond, Associate Director of Forecasting & Strategy at DTZ and author of the report comments: “The reduction in the amount of capital we estimate to be available for investment in 2012 reflects the current environment of less available and more expensive debt. The amount of equity we estimate available for investment actually grew 4% to US$139bn. But, this was more than offset by a 12% reduction in debt available to US$160bn. Therefore we are not surprised to see funds reduce their target gearing as they seek to place more equity into deals.”
Existing funds have started to put capital to work reducing the remaining raised capital for deployment in 2012 from US$285bn to US$246bn over the last six months. In a reversal of recent trends the report highlights a marked increase in new fund raisings. On the other hand, funds are targeting to raise up to US$53bn in new capital for deployment in 2012, a significant increase on the US$30bn recorded six months ago.
Comparing the domicile of the investor and the target geography indicates potential changes in cross border activity. The data suggests a higher level of cross border investment into Asia Pacific. 33% of investment could come from outside the region (inter-regional) with further 30% from within the region (intra-regional). This would represent a dramatic shift on the 10% cross border investment in 2011.
EMEA is set to attract the second highest level of inter-regional cross border activity at 19%. In contrast, activity in the Americas is set to remain dominated by domestic investment at 86%.
Hans Vrensen, Global Head of Research at DTZ comments: “The regions targeted by most investors are broadly consistent with our Fair Value Index scores. The US and Asia Pacific regions contain a larger number of attractive markets and make up 64% of targeted capital. But, we have not seen a corresponding decline in the capital targeting EMEA, despite markets becoming less attractive over the last few years. This implies funds are over-allocating capital to the EMEA region. This might be due to risk aversion with part of the investor base, as well as delayed deployment of raised capital targeting the region, as supported by transaction flows.”
Available capital could be at risk in future years, as more funds will reach the end of their investment period. This would require them to return capital commitments to their end investors, which would in turn endanger the expected fee income for the fund. To avoid this from happening, we expect that managers will seek to deploy this capital before this date. We expect that this will be a positive technical factor for increased transaction volumes in the next few years.
Hans Vrensen continues: “55% of available capital at risk is sitting with opportunity style funds, due to when they raised their capital originally. Given their broader investment focus, we expect that these funds will be looking to acquire bank loan portfolios with a strong sense of urgency.”
* See DTZ Insight The Great Wall of Money, September 2011
