Europe’s ‘Wall of Money’ to reach €87.7bn in deployment this year

Available capital for investment in direct European real estate this year is forecast to remain broadly static on last year with €87.7bn ($114bn) expected to be deployed by world’s property investors, according to estimates by DTZ Research.

According to DTZ’s Great Wall of Money report, published next week, there is a 1% reduction in expected capital deployment across the EMEA region in 2013, compared to last year’s €88.5bn ($115bn), as part of a 3% increase in global capital for deployment this year – at €246bn ($320bn), compared to 2012’s €239.45bn ($311bn).

Nigel Almond, head of strategy research at DTZ, said: “The fall in capital targeting the EMEA region reflects a reduction in the target gearing ratio as the availability of debt remains restrictive.

“In aggregate the target gearing ratio in the region fell to 46% from 50% six months ago. This is consistent with the challenges both investors and lenders face in the current market environment. Encouragingly, the amount of available equity grew 6% to USD 62bn underscoring investors’ faith in the region’s markets.”

DTZ’s Great Wall of Money report tracks both newly-raised capital and funds seeking to raise new capital to target direct real estate.

Some of the biggest real estate funds with capital deploy this year include global funds, with European allocations, raised by Blackstone, Brookfield, Starwood and Oaktree – which all had fund closings within the last 12 months.

However, some of these funds will consider commercial real estate debt, which DTZ strips out on an assumptions-basis, to arrive at its deployment estimates for direct real estate investments.

Closer to home, Norges Bank Investment Management and AXA REIM are expected to be big investors again this year, while funds by Aviva, Orion Capital Managers, AREA Property Partners, AEW Europe and Prudential are currently marketed to potential investors which could have closings and deploy before year end.

DTZ said the growth in new capital available for investment continues despite a challenging environment for raising funds, with investors still absorbing losses on existing legacy investments as uncertainty remains over the economic recovery.

Furthermore, increasing regulations further add to the uncertainty and costs of running funds for those in a position to raise capital.

The reduction in target gearing was evidenced across all regions, and fell by four percentage points in the Americas (from 60% to 56%) and five percentage points in Asia Pacific (56% to 51%).

However, both Asia Pacific and the Americas saw greater increases in equity targeting their region up 15% (to USD 40bn) and 19% (to USD 55bn) respectively.

This strong growth was more than sufficient to offset the impact of lower target gearing ratios.

Single country funds again continue to dominate reflecting 53% of raised capital. Of funds targeting a single country, a high proportion (43%) is targeted towards the US. A further 10% is focussed on China and 9% towards the UK. Across Europe, Germany is the next most targeted market attracting a further 4% of capital, followed by France (3%) and Italy (2%).

Over the last six months the amount of new capital being raised has slumped by over 30% to $34bn. This reflects the difficulties funds have encountered in successfully raising funds over the last 12 months, with a number of funds taking longer to reach their target commitment.

As a result, the growth in new funds has slowed across all regions. At the same time the amount of raised capital has grown, up 10% to USD 286bn in the same period as some funds reach an early close.

Hans Vrensen, global head of research at DTZ, added: “Funds continue to remain focussed on their home market or region, reflecting the uncertain market environment and investors’ risk aversion.

“In both EMEA and the Americas, over 90% of capital is to be deployed domestically or within the same region. Asia Pacific is the only market where we see a higher proportion, close to a quarter of new capital, coming from outside of the region.”

jwallace@costar.co.uk

About CoStar News

Finance Editor, CoStar News
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