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17. September 2012     Print Print 

Investment in retail real estate globally expected to hit US-$ 180 billion p.a.

Jones Lang LaSalle launches a new report, Redefining Retail Investment, to coincide with the International Council of Shopping Centers (ICSC) 2012 Retail Real Estate World Summit, taking place in Shanghai this week.

• Annual investment volumes in retail real estate could hit US-$ 180 bn globally by 2020 due to increasing cross-border activity, showing growth of around 50 percent on the projected volumes for 2012 (US-$ 110-125 bn).
• Retail’s overall contribution to real estate investment is expected to sit at close to 30 percent over the remainder of this decade, an increase from the 24 percent last decade.
• Growth markets are projected to account for around one-quarter of global retail investment by 2020, compared to less than 10 percent today. By contrast, established markets will decline from 83 percent to just above 60 percent.
• China and India top Jones Lang LaSalle’s Retail Real Estate Momentum Index which identifies the top 20 countries with the strongest momentum in retail real estate globally. Russia ranked 9th in this rating, Ukraine is 13th.

The report confirms that in the last decade, more than US-$ 1 trillion of retail real estate has been traded around the world. Global direct investment has averaged more than US-$ 100 bn per year since 2004 and in 2011 annual volumes hit US-$ 122.5 bn. In 2011 cross-border activity accounted for nearly half of all retail investment whilst levels accounted for only one-quarter of all trade in 2004. Cross-border activity will continue to track at around half of all retail investment, boosting annual investment volumes to US-$ 160-180 bn by 2020, representing a 30-50 percent increase on 2011 levels.

Arthur de Haast, Head of International Capital Group, Jones Lang LaSalle said: “The number of investable geographies has expanded globally as growth markets like China, Brazil and Turkey are attracting global investors. Together with an improvement in the quality and availability of retail assets, rising liquidity levels and further progress in real estate transparency, the retail investment sales sector is set for further rapid globalisation.”

Michael Niemira, ICSC Vice President of Research and Chief Economist said: “Many of these growing retail real estate investment opportunities - identified by the Jones Lang LaSalle report - also are being supported by an increasing number of countries adopting real estate investment trust (REIT) investment vehicles. The REIT, which provides transparency and ease of investment, has grown dramatically over the last 40 years with 27 countries already offering such financial regimes and currently another seven -China, India, Indonesia, Nigeria, Kenya, Vietnam and South Africa - considering future adoption. The ease of access to cross-border and domestic capital and strong consumer fundamentals should provide a solid platform for the growing global retail real estate markets over the next decade.”

There will be a general rebalancing in capital flows towards the Asia Pacific region, due to favourable demographics and the growth of the middle class. By 2020, Asia Pacific is forecasted to account for 26 percent of global retail investment volumes, up from 22 percent currently and from only 11percent in the mid-2000s. The report projects that the Americas will hold onto around 33 percent of volumes between now and 2020, whilst EMEA will take around 41 percent (compared to 45 percent currently).

In light of this trend, institutional capital is seeking greater retail exposure as it taps into favourable global demographics and growing ‘consumer classes’, and is attracted by the sector’s defensive qualities during times of uncertainty. This is witnessed in the growing contribution of retail to total commercial real estate investment, from 19 percent in 2007 to nearly 30 percent in 2011. Retail’s overall contribution to total real estate investment is set to remain at close to 30 percent over the remainder of the decade, as institutions and private investors seek to tap into the growth potential of expanding consumer markets.

The report also introduces the Retail Real Estate Momentum Index, which lists the top 20 countries with the strongest momentum in retail real estate. China and India sit at the top of the list, though South East Asia and Latin American nations also feature well. Russia ranked 9th in this rating, Ukraine is 13th.

Maxim Karbasnikoff, European Director, Head of Retail Department, Jones Lang LaSalle, Russia & CIS, commented: “Russia is one of Europe’s growth markets with an increasing investors’ activity. Retail market in Russia is attracting significant interest from global players, encouraged through ‘signpost’ transactions which are alerting the world to opportunities in this country. Rising disposable incomes, expanding middle class and rising levels of credit penetration are key factors attracting new foreign retailers. Russia and Turkey will be ranked among Europe’s largest in terms of modern shopping centre stock by 2020 and expected to account for 10-15% of Europe’s investment activity by 2020.”

Commenting on the Index, David Hand, Head of Investment for China, Jones Lang LaSalle said: “There is no doubt that China offers an enticing and exciting proposition to investors globally. Not only is it set to become the world’s largest consumer market, but China is projected to be a US-$ 15 bn a year retail real estate investment market by 2020. The investment landscape will become more globalised, fuelled by a burgeoning middle class, rapid urbanisation, strong consumption growth and significant expansion of quality retail infrastructure. It is definitely the one to watch this decade.”