By Judi Seebus

British call this office building in London, designed by Lord Norman Foster, the Gherkin. This “trophy asset” changed owners in the first months of this year.

International investor appetite for real estate remains unsated. Provisional figures from adviser Jones Lang LaSalle show that direct real investment volume worldwide totalled a record 279 billion Euros in the first half of 2007, marking a 17 percent increase on volumes over the year-earlier period.

Globally, Europe still attracts the bulk of cross-border investment, with investors continuing to flock in from all corners of the world—the US, Australia, the Middle East and increasingly also Asian countries. Asia itself is also gaining in favour as institutional investors diversify their portfolios. Compared to Europe, the region is still a very small market and relatively non-transparent. But it is growing rapidly with Japan and Singapore currently in the spotlight and India and China making enormous strides.

Hotels as the seasonal hit

Global players of the likes of Blackstone and Morgan Stanley are heading the search for new cross-border real estate products. Both investors have recently amassed impressive international hotel portfolios. Just months after acquiring US-based EOP for a record 36 billion US-Dollars (26 billion Euros) in the largest real estate deal ever, Blackstone swooped on the Hilton Hotel in the biggest buyout of a hotel company ever seen, acquiring the chain for 26 billion US-Dollars (19 billion Euros) and firmly consolidating its position as the world’s biggest hotel landlord with 100,000 hotel rooms in the US and Europe. The move is the latest in a string of international hotel deals completed this year by private equity firms and other investors, which are seeking to take advantage of the hotel chains’ consistent cash flow and real estate holdings. No less than a quarter of the 20 biggest investment deals in Europe in the first six months of 2007 involved hotels.

Jones Lang LaSalle foresees global investment in hotels reaching 80 billion Euros this year. Despite the flurry of activity, the market is expected to see a significant slowdown in the second half of 2007 compared with the first six months while the size of the portfolios is also set to decrease. The market slowdown is due not to a lack of demand, but to lack of product.