According to Phil Tilly, Director of Operations for IPD (pdindex.co.uk) 80% of the booming $600-billion in global property investment forecasted for 2006 will be in the US, France, Germany, Japan and the UK. The remaining 20% is invested in other developed real estate markets, like Canada, and the emerging markets.
While the emerging real estate markets, particularly China and India, receive a lot of media attention, they have yet to account for a significant portion of international investment. Emerging real estate markets remain considerably more risky than developed ones, require a long-term view and 'foreign' real estate companies are just getting established in these countries. Tilly explained that for the first time in 2006 more than half the world’s population lives in cities and ‘property rights’ still don’t exist in many countries.
Western European countries, UK, France and Germany, are three of the top five players globally yet a short decade ago European real estate markets were comparatively undeveloped. According to Sebastien Bazin, Managing Director Europe, & CEO ColonyCapital SAS in France (colonycapital.com) downtown office vacancy data was non existent, sophisticated property management was not readily available and there were huge geographical variation in property values and CAP rates between major cities.
Bazin explained that the European situation has changed dramatically in ten years. While in the past Europeans sold property as a last resort, it has now become acceptable to trade in commercial real estate. Furthermore, introduction of the Euro, REIT legislation and other real estate funds and securities have created liquidity in the market.
Western Europe, eight times larger than the Canadian market, is getting international real estate investment because it has become a transparent and liquid market with high quality properties at geographically comparable values. There are sophisticated management teams, development and financial partners available locally, and stable national economies.
According to Robert Orr, International Capital Group, Jones Lang Lasalle, London, Germany is an attractive investment market because “it is a ‘recovery play’ with regional diversification and like minded local players.”
A logical real estate market to pursue after Western Europe is Central and Eastern Europe because of its proximity and socio-economic similarities. Several speakers at the Global Property conference identified Russia, Moscow in particular, and Warsaw in Poland as up and coming markets.
Based on Giffels (giffels.com) experience building a distribution warehouse near Moscow, Michael LeGresley, President and CEO, Giffles Design-Build Inc. described the pros and cons of developing in Russian. He described how Moscow with a population of 15 million fits into an area roughly the size of Toronto’s Greater Golden Horseshoe and is in drastic need of ‘logistic suppliers’. Although the return on investment is in the 40% range, he portrayed the development approval process as incomprehensible from a Canadian perspective. There is also considerable transaction risk as financial arrangements entail ‘a trust’ relationship with a local financier rather than institutional financing.
In North America, if close proximity is a criterion for determining upside potential, Mexico is massively overlooked as a real estate investment opportunity.
Political instability is no longer the concern it has been in the past, according to panelists at the Global Property Market. Mario Navarro, Senior Director, Cushman & Wakefield LePage, Mexico, said that in spite of an indecisive victory in the recent Presidential election the Peso had not changed in value. With a population of just over 100 million, 70% under the age of 30, economic growth has generated an ‘impetus for political stability’.
Ruben Navarro-LeDesma, Director Bajio Region, NAI Global Mexico explained how Mexico is investing heavily in infrastructure particularly ports and highways. Updated trade routes are to connect the U.S. to Mexico’s coastlines and heavily industrialized Free Trade Zone. It is also to capitalize on Mexico’s favorable position between North and South American and on global sea trading routes.
While Mexico expects that foreign investment will continue in the hospitality industry and urban office markets, particularly in Mexico City, investors are moving into the “peso’ markets. The ‘Peso markets’ are the residential and retail sectors traditionally dominated by Mexicans.
While Mexico has one square foot of retail space per capita the U.S. has twenty. Wal-mart has already secured 22% of the Mexican retail market. There is a projected deficit of 6-million housing units over the next 10 years requiring construction of 650,000 homes per year. According to Mario Navarro, a Mexican developer has established 35,000 units as a minimum threshold for any housing project.
Global Property Market
The Global Property Market offered an exceptional opportunity to learn about the trends, strategies and risks associated with international real estate investment. With so many opportunities opening up around the world it is an event you will not want to miss next year.