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Moscow

Pension Funds Will Be a Major Driver of Growth in the Sector Globally

The investment volume has the potential to double the size over the next 15 years


Moscow, 18 September 2013 – Jones Lang LaSalle presents current European capital market key trends as well as touching on some of the factors behind the growth of the market in Russia.

Recently, on the back of low yield environment across other asset classes, Real Estate sector became attractive for investors, with global transaction volumes in the first half of this year at the highest level in five years, at USD225bn. The share of non-European investment into Europe is increasing, up from 26.5% in H1 2012 to 28.7% in H1 2013.

Global transaction volumes record strongest H1 in 5 years
Global transaction volumes record strongest H1 in 5 years.png
Source: Jones Lang LaSalle

According to Robert Stassen, Head of European Capital Markets Research, Jones Lang LaSalle, in the future the pension fund industry will be a major driver of growth in the sector. Indeed, this has the potential to double the size of the investment market over the next 15 years. Globally savings are growing in order to fund future pension fund liabilities and investors will look at real estate as comparatively attractive asset class. This “Wall of Money” has the potential fundamentally to change the backdrop for real estate investing. Looking at the 5 countries with the largest domestic savings, the scale of the potential growth in the industry is evident; China alone is estimated to have some USD14,400bn in domestic savings by 2022 and the USA, USD4,400bn.
 
Jones Lang LaSalle’s experts also see globalization of the investor pool, from the Swedish investors of the late 1980’s, through to the US private equity funds in the mid 2000’s fuelled by cheap debt and the CMBS market. The current market is defined by the global nature of the investor base, from Koreans investing in Chicago and London to Americans investing in Norway.
As the geographic base expands, the profile of investors participating in European real estate markets will also change. For example, insurers, debt funds and private equity funds will play an increasingly important role, providing a wide variety of financing options.
 
Investors are also likely to move further “up the risk curve”. That is to say where previously investors have divided assets into “prime” and “non-prime”, in the future such a bi-polar market will no longer exist. Investors are already broadening their definition of “non-prime” into “secondary” and “tertiary” as prime assets get scarce. The tendency of investment interest skewness towards non-prime assets are backed by the growing real estate allocations, improving sentiment and debt is becoming cheaper.
 
European markets recovering at different speeds: Investment volumes rolling average (Q1 08 =100)
European markets recovering at different speeds.png
Source: Jones Lang LaSalle; Property Data (UK); Akershus Eiendom (Norway), Athens Economics (Greece), Sadolin & Albaek (Denmark), RCA Analytics
 
Robert Stassen also noted the robustness of the Russian market and it’s quicker after crisis recovery (see the chart above), as well as the attractive property yields. In the first half of this year, Russian real estate investment grew by 31% compared to the same period of 2012, with total investment volumes at USD3.7bn, which is close to record figures of the first half of 2011, at USD4bn. The majority of activity was in the office and retail segments. Capitalization rates in Moscow are among the most attractive in Europe. For example, office prime yields in the Russian capital, at 8.75%, offers to investors a premium of 500 BPS to the respective London yield, 450 BPS – in Paris, 420 BPS – in Frankfurt, 275 BPS – to Warsaw.
 
 
About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 242 million square meters and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $46.3 billion of real estate assets under management.
In Russia and CIS Jones Lang LaSalle have offices in Moscow, St. Petersburg, Kiev and Aktau. Jones Lang LaSalle, Russia was voted Consultant of the Year in 2004, 2006, 2007, 2008, 2009, 2010, 2011, 2012 and 2013 at the Commercial Real Estate Awards, Moscow and Consultant of the Year at the Commercial Real Estate Awards 2009, St. Petersburg. For further information, please visit www.jll.ru