Report shows global RE investment topped $475b in 2005.

Jones Lang LaSalle's latest global real estate capital report, released at MIPIM, records global direct commercial real estate investment of $475 billion in 2005, an increase of 21% over 2004.

North America remained the largest investment destination (nearly half of total transaction volume) while Asia Pacific experienced the strongest transaction volume growth at nearly 56%. Cross-border investment (as a proportion of total investment) increased from 29% in 2004 to 35% in 2005, reaching $164 billion, with Europe accounting for over two-thirds of total volume.

Inter-regional investment transaction volume rocketed by 40% and now accounts for almost a quarter of total global transaction volume. Europe attracted 60% of inter-regional purchase volume, while the United States was the most popular country for inter-regional investment, followed by the UK, Germany, France and Sweden.

Global sources of funds dominated inter-regional investment in 2005, accounting for approximately $32.9 billion on the buy side and $28.9 billion on the sell side, an indication that these investors are actively managing their international property portfolios to achieve higher returns and international diversification. While U.S. and Australian investors each accounted for 14% of inter-regional purchases, Middle Eastern investors also remained a major source of inter-regional capital with $9.9 billion in volume, accounting for 13% of inter-regional purchases.

Tony Horrell, CEO of Jones Lang LaSalle's International Capital Group, commented: "As allocations to international real estate grow, opportunistic capital is increasingly targeting the shores of recovering and emerging markets." Germany and Japan saw particularly strong markets in 2005 and are countries to watch in 2006, he noted.

"North America, specifically the prime CBD office U.S. markets, continues to see significant capital inflows from numerous parts of the world," said Noble Carpenter, International Director at Jones Lang LaSalle. "In particular, investors from Australia, the Middle East, Hong Kong and Ireland have increased their investment activities in the region while traditionally strong interest from Israeli and German investors continues. International investor interest in Toronto and Montreal, Canada, and Mexico City and Monterey, Mexico also remains strong. We expect properties in these markets and well positioned assets in U.S. secondary markets such as Florida, Texas, Atlanta, Philadelphia, Denver and Seattle to continue to attract strong international investor interest in 2006."

Report highlights:

* United States--The U.S. recorded a net positive inflow of $7.8 billion of real estate investment volume in 2005, based on $21.8 billion of acquisition activity and $14 billion of sales activity. The five most active U.S. markets for acquisitions in 2005 were Manhattan, Washington, D.C., Chicago, Houston and Dallas. U.S. markets with the greatest volume of global and international dispositions included Manhattan, Washington, D.C., Los Angeles and Chicago.

* Latin America--2005 was a strong year for cross-border flows into Latin America, in particular Mexico, as it increasingly becomes a target for inter-regional capital, recording $2 billion of acquisitions and $80 million of sales.

* China--In 2005, China emerged as an increasingly popular destination for inter-regional capital, recording $2.3 billion of purchases. Although interregional transaction volumes in China are currently far smaller than the larger markets of UK, U.S., Germany and France, the potential proportion of investment-quality real estate will continue to grow with rapid economic expansion, relaxed foreign investment laws and improving transparency. China is set to be another strong growth market in 2006.

* France--France continued to demonstrate strength in attracting inter-regional capital, recording $7.2 billion of purchases and $5 billion of sales for positive net inflows of approximately $2.2 billion. Global investors dominated inter-regional purchase activity, with the Paris office market (one of the largest in Europe) being a favored destination for international money due to its high transparency and good rental growth prospects.

* United Kingdom--At an inter-regional level, the UK was dominated by global, Middle Eastern and U.S. sources of funds although intra-regional sources of capital were also significant, namely Irish at $7.6 billion and German at $4.3 billion

* Investor types--Inter-regional purchase activity in 2005 was overwhelmingly dominated by unlisted and listed funds and institutions. Unlisted funds were the largest inter-regional purchasers in 2005--increasing their purchases by 73% over 2004 levels and increasing their share of inter-regional purchase activity by 55%. Institutions were significantly more active in 2005, but were overall net sellers.

* Key market sectors--In 2005, inter-regional investment saw relatively little change in the overall distribution of capital between property sectors. Office transactions remained the dominant sector, accounting for approximately 56% of total transactions, retail 26%, industrial 13% and hotels 5%.

* Liquidity--In Europe and North America, Jones Lang LaSalle estimates over 10% of investor-owned real estate (both public and private) changed hands in 2005, offering unprecedented levels of liquidity.

Looking ahead, Tony Horrell concluded: "We expect capital flowing into real estate to continue to outweigh suitable opportunities as realestate remains an attractive asset class, relative to equities and bonds. Key themes we predict going forward include a competitive and structured debt market driving weight of capital and the globalization of REIT markets and pooled asset vehicles, both of which will accelerate the globalization of direct real estate investment."