The amount of new capital for investment in the global commercial real estate markets that would be available in 2012 has fallen 4 percent to US$316 billion from $329 billion at the end of 2010, according to a new report from real estate services firm DTZ.
This decline marks a reversal in the growth of available capital seen by global markets since the end of 2009, according to the firm’s The Great Wall of Money report, which tracks new capital targeting direct real estate.
DTZ said the only region to record an increase in newly available capital is the Americas, where the total capital available has risen 3 percent to $114 billion. By contrast, new available capital has dropped in both Asia Pacific, down 12 percent to $91 billion, as well as EMEA (Europe, Middle East and Africa), which fell 3 percent to $111 billion.
At the same time, DTZ also said it continued to see a reduction in new capital raising, which is now less than a third of the volume seen at the end of 2009, when the firm first began its analysis.
“The reduction in new capital raising is not surprising given the renewed global economic uncertainty, while funds focus on putting existing capital commitments to work,” said Nigel Almond, associate director of forecasting and strategy at DTZ, in a statement.
Because of the significant increase in transaction levels in Asia Pacific during 2010 and the first half of 2011, funds have been quickly deploying capital in order to take advantage of attractive pricing in the region, he said. In EMEA, while the amount of newly available capital has remained stable overall in the past two years, that is yet to be reflected in transaction activity, which suggests that funds targeting Europe are finding it harder to find suitable opportunities.
Meanwhile, despite a rising amount of capital available in the Americas, transactional activity has exhibited only modest growth, implying that greater transaction levels are still to come, said Almond.
DTZ also noted that for the first time in its analysis, the majority of funds – 52 percent – are targeting a single country, up from 30 percent in 2009. Of these single-country funds, the US was the popular focus, accounting for 51 percent of such funds, followed by the UK at 10 percent.
The majority of investors still prefer to focus on multiple property types, accounting for 80 percent of available capital, which suggests a preference for a certain amount of flexibility when deploying capital. Among the single-property type funds, retail accounts for 35 percent of such funds, while industrial is the second most-preferred sector.
Given increased market uncertainty, DTZ said it saw some investors shifting their focus down the risk spectrum toward core opportunities. However, because more than a third of capital was raised prior to 2008, the firm expected many fund managers to be pressured to deploy capital in the next 12 months, which could lead to more of a focus on value-add or opportunistic investments. Additionally, new regulations that have been proposed in the wake of the financial crisis “could lead some institutional investors to pause their deployment of capital until the full impacts of the new regulations have been detailed,” the report said.
If these uncertainties continue, the amount of new available capital would likely decline further as managers focus on deploying capital for funds approaching the end of their investment periods, some firms seek to extend the lives of their funds so as to invest existing capital and new equity raisings slip further as listed companies delay raising fresh capital or IPOs amid continued volatility in the equity markets.