Asian sovereigns drive surge in European capital inflows

Net investment into European commercial real estate rose 36% in 2012, with London still the world’s most active centre and stoking hopes of recovery in some distressed property markets, including Ireland and Spain, says realtor Jones Lang LaSalle. The surge was driven by an 80% rise in inflows from Asia, mainly from large sovereign wealth funds.

Large Asian sovereigns, as well as those from the Middle East - plus cash-rich Canadian pension funds - have become increasingly active in European property, initially focusing on the best assets in London but increasingly looking further afield. Chinese state-backed fund Gingko Tree was the partner for Deutsche Bank’s RREEF on its purchase of a high-quality office block in Manchester, reports say. Asian inflows could rise further in 2013 as Chinese and Taiwanese insurance groups, now able to invest in overseas real estate for the first time, begin to investigate offshore markets, JLL said in its latest global capital markets research report. 

London was the busiest city for property deals, with $31bn of commercial property transactions in 2012, some 20% more than New York, which had a stronger final quarter. However, investors were also attracted to deals in Germany, France and Sweden, as well as distressed property markets, including Ireland and Spain, which saw a rise in deals in the final quarter of the year. That could signpost an increase in activity in 2013 as overseas investors eye higher-risk investments with the potential for higher returns.

Despite the rise in capital inflows into Europe from outside the region, the overall volume of property sales across Europe, Middle East and Africa fell 4% in dollar terms for the year to $159bn, JLL said. Owners seeking a safe haven for capital chose to hold onto assets for longer. JLL earlier predicted that global property deals could rise to $500bn from $443bn last year.

During the final quarter of the year Europe recorded eight cross-border deals larger than $500m. Norway’s government pension fund, the world’s largest sovereign fund with some €466bn, was one of the most active, acquiring the Meadowhall shopping centre in Sheffield and the Uetlihof office development in Swiss capital Zurich, headquarters of Credit Suisse.