Global sales hit £388bn

Commercial real estate sales worldwide last year rose to a record £388bn but slackened in the second half of 2007, as the credit crisis crimped transactions, according to a report by real estate research firm Jones Lang LaSalle.

The report also said sales are expected to be lower this year than in 2007, which was £30bn higher than in 2006.
In the first half of 2007, real estate investment globally reached £200bn, the report said. But the second half saw investment slow to £186bn, as activity dimmed in the United States and the United Kingdom, which comprise more than half of global real estate sales.

“The very strong performance in the first half helped overall investment to exceed 2006 – itself a record year,” Tony Horrell, chief executive of European Capital Markets at Jones Lang LaSalle, said in a statement.

Cross-border sales – in which at least one party of the buyer or seller is not from the country in which the property is located – accounted for 46 percent of global transactions, up from 43 percent in 2006.

The credit crisis, which started in the US sub-prime residential real estate market and spread across major credit markets, sidelined most highly leveraged investors.

Since buildings aren’t appreciating as rapidly as they have in the past five years, buyers can no longer count on selling the property quickly for a higher price, according to the report.

Tighter borrowing terms and more expensive debt are expected to curb the number of deals for portfolios containing a large number of properties, and for very expensive properties, according to the report.

“In 2008 we expect total global volumes to be below those achieved in recent years due to lower pricing and fewer transactions,” Mr Horrell said.

Still, a large number of equity players, such as pension funds, sovereign funds and very wealthy families are cash rich and in ‘wait-and-see’ mode, the report said.

“We now see clear buying opportunities emerging in a number of markets,” he said.

Real estate fundamentals – rent and occupancy – to date remain very strong in the world’s major markets, the report said. Construction remains modest and the constrained supply can help support occupancy and rental rates, the report said.

In Europe, commercial real estate sales reached (£167bn) $327bn in 2007, up 2 percent in terms of US dollars but down 6 percent in local currency. Deal flow in the first half reached $168.5bn but slowed in the second half to $158bn.

Cross-border investment in European commercial real estate represented 63 percent of European sales, up from 61 percent in 2006.