Real Estate Investment Boosts Pension Funds
Published: September 25, 2013 (Issue # 1779)
Globally, the real estate sector is one the most attractive for investors when compared with the lower returns on other classes of assets. Worldwide transaction volumes in real estate in the first half of 2013 reached their highest level in five years and were worth $225 billion, according to data from Jones Lang LaSalle.
In the future, the pension fund industry could become the major driver of growth in the sector, experts predict. According to their forecasts, 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. Investors look at real estate as a comparatively attractive asset class. This could fundamentally change the backdrop for real estate investment. Looking at the five countries with the largest domestic savings, the scale of the potential growth in the industry is evident,” said Robert Stassen, head of European capital markets research for Jones Lang LaSalle.
One trend on the investment market is the globalization of the investor pool — from Koreans investing in Chicago and London to Americans investing in Norway. With the expansion of geographic focus, the profile of investors participating in the European real estate market is also expected to change. According to Jones Lang LaSalle, insurers, debt funds and private equity funds will all play an increasingly significant role, providing a variety of financial options.
Another market tendency is the movement of investment interest towards non-prime assets. In the past, investors divided all assets into “prime” and “non-prime”.
“In the future such a bipolar market will no longer exist. Investors are already broadening their definition of “non-prime” into “secondary” (more interesting) and “tertiary” (less interesting) as prime assets become scarce,” said Stassen.
As compared to Europe, Russian markets recovered rapidly after the economic crisis of 2008. In the first half of 2013, investments in Russian real estate increased by 31 percent, according to data from Jones Lang LaSalle. The most active sectors in the country are office and retail real estate; the office segment is in particular one of the most attractive for investors in St. Petersburg.
The relocation by Gazprom of some of its departments to St. Petersburg has created demand for office real estate. The company, which belongs to Gazprom International, bought an office building on Nevsky Prospect in 2013 to meet its needs.
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