Real estate professionals who are eagerly awaiting a mass influx of investment by the world's massive sovereign wealth funds (SWFs) may get their wish over the next seven years. CB Richard Ellis (CBRE) says the funds may be on the verge of ramping up their property investments in massive fashion. In a new report, the global property adviser says SWFs are expected to become 'one of the most significant investors in the world's commercial property markets' - potentially investing as much as US$725 bn (EUR 492 bn) between now and 2015.
Real estate professionals who are eagerly awaiting a mass influx of investment by the world's massive sovereign wealth funds (SWFs) may get their wish over the next seven years. CB Richard Ellis (CBRE) says the funds may be on the verge of ramping up their property investments in massive fashion. In a new report, the global property adviser says SWFs are expected to become 'one of the most significant investors in the world's commercial property markets' - potentially investing as much as US$725 bn (EUR 492 bn) between now and 2015.
Approximately half of the world's SWFs are believed to hold direct commercial real estate investments and their allocations to the sector are expected to rise substantially. Ray Torto, chief global economist at CBRE, says: 'Given that the real estate sector’s investment characteristics - current income combined with long-term appreciation - closely match SWF requirements, we expect them to increase their weighting of commercial property to approximately 7% of their total assets. With nearly US$4 tln of total assets currently under SWF control, a 7% allocation would mean worldwide commercial real estate investments totalling US$280 bn. To put this number in context, the entire US institutional-grade property portfolio owned or managed by investment managers and plan sponsors is valued at approximately US$330 bn today.'
'Looking to the longer term, the SWFs’ potential for future property investment is even more significant. It has been estimated that the SWFs could reach total assets of US$12 tln by 2015. A 7% allocation implies SWFs would make approximately US$725 bn of net property investments over the next seven years.'
The report anticipates the influence of SWFs will be felt across the world. In order to achieve target allocations, SWFs will need to diversify future investment widely across geographies, sectors and investment vehicles. Thus far, SWF property investments have been largely concentrated in the US and the Middle East.
'Although SWFs are likely to continue to focus on core real estate product in major markets, they will have to put capital to work in new geographies and emerging sectors. Favoured future destinations are expected to include Japan, the UK and other countries with currencies that are not held in the SWF's foreign reserves,' according to Michael Haddock, director EMEA Research, CBRE.