Big Appetite
Nov 1, 2008 12:00 PM, By Jennifer Popovec
Sovereign wealth funds will increase property investments.
Although sovereign wealth funds (SWFs) are expected to increase their investment activity in the U.S. commercial property market, they probably won't be looking to invest in retail assets — at least until consumer spending ramps up and recession fears ease. “In Europe, retail is seen as defensive because of the lease structures, but in the U.S. there's a much higher proportion of turnover risk with retailers, and owners are more exposed to overall economic performance,” says Michael Haddock, director of EMEA research for CB Richard Ellis, which recently released a report on SWF investment. “In the short term, sovereign wealth funds may have some issues with buying into U.S. retail properties.”
Over the next seven years, SWFs are projected to invest as much as $725 billion in the world's commercial property markets, according to the CBRE report. Currently, SWFs have nearly $4 trillion of total assets under control, and CBRE's Chief Global Economist Ray Torto expects them to increase their allocations to 7 percent of their total assets, or $280 billion. To put that in context, institutional investors own about $330 billion worth of U.S. institutional-grade properties today.
MONEY TO SPEND
| CB Richard Ellis estimates that the SWFs' projected new investment is likely to be distributed as follows: | Allocation | Total net investment by 2015 (US$ billion) | Annual net investment (US$ billion) |
|---|---|---|---|
| Direct Real Estate | 40%-50% | 290-360 | 40-50 |
| Unlisted Property Funds | 20%-30% | 145-220 | 20-30 |
| Listed Property Companies | 5%-10% | 35-70 | (5-10) |
| Debt | 20%-25% | 145-180 | 20-25 |
| Derivatives | negligible | n/a | n/a |
| Source: CB Richard Ellis | |||
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