exporeal.net - INVESTMENT

Growing share in cross-border investments

The continually growing diversification of (real estate) portfolios particularly of international institutional investors can also be seen in the volume of crossborder real estate investments. This volume will increase this year, even though only a few products are available and the constant pressure on returns will continue.

Although investment activity in the familiar, domestic real estate markets will still dominate, the number of cross-border investments grew from 2006 to 2007 to 35 percent now. By opening the Asian investment ports, the commercial real estate markets there could enjoy a boost in foreign direct investments last year. The European – particularly the German – real estate investment market profited from the global real estate investment boom, where more than two-thirds (110.4 billion US-Dollars) of all cross-border real estate transactions took place.

Japan will especially profit in 2007 because of its steady economic growth, low interest rates as well as a positive development in real estate prices. The usual important markets in the Asian region will also enjoy an increase in investments. Australia is the only country in the region that will have to expect a lower share, both because of its low supply of available real estate, and strong local demand, it keeps foreign investors at bay.

The increasing globalisation of real estate markets is evident in the increasing share of intercontinental investments. This is also obvious in the changed portfolio structure of institutional investors. They are moving away from their traditional terrain and – based on their investment strategy – are conducting a more active, international portfolio management, where they are active in the worldwide real estate investment market as both buyers and sellers.

This worldwide activity leads to declining returns from the real estate investment. This is because of abundant liquidity with a simultaneously (in part) low supply of products. This low supply of products, in turn, is plagued with over-proportionally growing purchase prices, and stable or only underproportionately increasing yields on the investor’s side.