Investors look to European pricing over APAC growth

February 21, 2012 / By  

The year end 2011 Global Capital Flows numbers have thrown up some interesting trends and observations. Europe finished the year as the most active region (US$165 billion) against most people’s expectations, while the Americas saw a 60% uplift on 2010 to US$155 billion. Asia Pacific despite various headwinds in the form of natural disasters and generally tighter monetary policy across the region also delivered a 6% increase on 2010 (US$91 billion). Overall global volumes were 28% higher than 2010 at US$411 billion.

One of the more interesting trends was the slowdown in the amount of inter-regional capital allocated to Asia Pacific, which dropped from US$16 billion in 2010 to US$11 billion in 2011. In contrast the Americas and Europe both saw big increases in their amount of inter-regional allocations.

This is surprising in that the majority of property investors look for markets which are displaying consistently strong economic growth, which will then support tenant demand and capital appreciation. While Asia Pacific has a plethora of cities, regions and countries all forecast to deliver strong economic growth for many years, investors have been lured by the attractive pricing but weaker economic outlook in Europe and the Americas.

Global funds, those that raise their money internationally, have been the most obvious participants in this change in strategy. They reduced their purchasing activity in Asia Pacific by almost 70% in 2011 compared to 2010 while increasing their exposure to the Americas by 152% and Europe by 121%.

Indeed Asia Pacific investors have not been immune from this phenomenon. Between 2010 and 2011 investors from Asia Pacific doubled their purchases in the Americas and increased them by 42% in Europe. The most popular destinations were the large, liquid markets of London, Paris, New York, San Francisco and Rio de Janeiro.

Will this continue into 2012 or will investors reassess their criteria and look towards growth markets once more? Our forecasts are for transactional volumes in 2012 to be consistent with those recoded in 2011, around US$400 billion globally. How that will be split between domestic activity and inter-regional investment is difficult to predict, but certainly all of the factors needed for increasing transactional volumes are present in Asia Pacific, economic growth, increasing income levels, growing populations and an investment market that continues to develop and become more transparent. The one imponderable is sentiment, which can move and shift very quickly but will always look for opportunities wherever they may be.

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