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Despite the fact that many commercial real estate markets around the world are recovering, there will still be a scarcity of new capital for most types of transactions. That's the latest news from DTZ, the world's biggest and oldest real estate research firm, which is 228 years old. For sale Qatar | Lusail Properties
Some markets are raising new money, but not consistently around the world. The fifth edition of 'The Great Wall of Money,' published by London-based DTZ, finds:
During the first half of 2012, available capital for investment in commercial real estate markets fell by 6%, or around $298 billion, globally.
The fall in available capital was attributed to a 13% reduction in debt, which outweighed the 4% rise in equity capital. Over the same time frame, the average Loan To Value (LTV) ratio fell from 58 percent to 54 percent.
As funds put existing money to work, total available capital decreased, depleting the stock of capital already raised. An rise in new capital, from $30 billion to $53 billion, only partially offset this.
Cross-border investment increased in Asia-Pacific (APAC) and Europe, as well as the Middle East and Africa (EMEA).
With 33 percent of investment capital coming from outside the country, APAC remains common. This compares to 19 percent in EMEA and 8% in the Americas.
The United States and Asia-Pacific now account for 64% of targeted capital. "This is not surprising," according to DTZ, "because they include a greater number of attractive markets, as shown by the DTZ Fair Value Index." Despite the fact that markets are becoming less appealing, DTZ has not seen a corresponding drop in capital targeting EMEA.
Many funds were raised before 2009 and are now nearing the end of their investment period, putting available capital at risk. This is particularly important because: managers will attempt to deploy this capital rather than return the investors' commitments and jeopardize their core fee income; and managers will seek to deploy this capital rather than return the investors' commitments and jeopardize their core fee income.
Opportunity funds account for 55% of available capital at risk; attractive opportunities for these at risk funds are expected to come from bank loan portfolio sales, especially in Europe.
According to the DTZ survey, new capital inflows have decreased in all three regions. The most significant drop was in APAC, which fell by 9% to $83 billion.
"This comes after another year of strong investment activity, and no doubt reflects funds' ability to deploy capital rapidly," the report says.
After a time of steady growth, available capital in the Americas dropped 5% to $108 billion, though it remains the area that attracts the most capital.
This is just ahead of the $107 billion earmarked for the EMEA area (down 3 percent ). According to the paper, "the relatively small drop in Europe reflects the difficulty funds are having in deploying capital with relatively few investment opportunities and continuing uncertainty as the sovereign debt crisis continues."
Investors continue to support a policy of concentrating on several markets, according to DTZ's property form report. Over 80% of available capital is still directed into several industries, with just 19% focusing on a single one. Since the end of 2009, nothing has changed.
Retail remains the most focused sector among single-sector funds, accounting for a quarter of all single-sector funds, down from 35% in mid-2011.
Together with residential, industrial accounts for another 20% of the total. Residential's appeal stems primarily from investment in the United States and a range of funds focusing on multi-family opportunities in Germany, according to the study.
Although offices have retained their share of capital, hotels have fallen behind, with other industries, primarily healthcare, gaining a larger share.