International Property Journal - News and information on global property markets

The next year will develop as the “era of less, the Twilight Zone” for commercial real estate in the United States, Urban Land Institute senior fellow Stephen Blank told a group in Philadelphia this week.

Blank was presenting the results of the institute’s latest Emerging Trends study, which surveyed 875 industry professionals. The research found industry professionals expecting “high single digit returns for core properties.” But with lenders stepping up foreclosure activity, valuation on many properties could “reset 30-40 percent below 2007 peaks.”

Demand for commercial property in Europe is growing, but it’s emerging markets leading the recovery, according to the latest survey by the Royal Institution of Chartered Surveyors.

Data points to a “two speed” recovery, the RICS says. Emerging Asia and Latin America led the way in the third quarter, in particular China, Hong Kong, Brazil and Singapore.

The amount of global capital targeting commercial real estate is expected to jump in the next year, with the U.S. the biggest recipient, a new report says.

DTZ Research estimates $281 billion will be available for investment in commercial real estate purchases in 2011, a 22 percent increase from its earlier estimates. The U.S. is expected to see a 54 percent increase in activity, while Asia Pacific might see a 29 percent bump, the consultancy’s latest report says. (Europe remains the largest target market.)

Investments in commercial property are up 74 percent in the first half of 2010, led by a sharp increase in cross-border deals, according to Jones Lang LaSalle.

International deals almost doubled in the first half, compared to the same period of 2009, up to $56.8 billion, the firm says. Cross-border investments represented about 43 percent of the transactions, in contrast to a low of 31 percent in 2009.

Two years after buying almost $6 billion in U.S. commercial real estate--more than Europe, Asia and the Americas combined--Middle East investors have almost disappeared from the American market.

In 2009, Middle East buyers accounted for only $100 million in deals, according to data tracked by Real Capital Analytics, a U.S. firm. So far in 2010, the Middle East isn’t even on the top 10 list of foreign investors, the company reports.

In 2004, faced with a “flood of capital” into real estate markets, the directors of the CalPERS investment fund, one of the largest pension funds in the country, made a fateful decision.

With yields plummeting, CalPERS sold off $16 billion of core assets and decided to shift $30 billion of the portfolio into “higher risk” real estate. At the same time, the fund, which represents California public employees, moved toward “a less formal authorization process,” giving staff less control of the risky investments, according to a new report.

Needless to say, the new strategy didn’t go well.

The long-predicted commercial market disaster in the U.S., which was supposed to dwarf the impact of the residential collapse, hasn’t materialized, according to a panel of industry executives.

“The failure we were all anticipating didn’t really happen,” said Richard LeFrak, chairman of the LeFrak Organization, during this week’s Milken Institute Global Conference.

On a panel entitled “Reviving the Commercial Real Estate Market,” executives agreed the U.S. market has likely reached a bottom, even though vacancy rates in office and retail are close to 20 percent in some markets.

International money has helped stabilize the market, said Barry Sternlicht, c.e.o. of Starwood Capital Group.

After a year-long hiatus, investors and developers are ready to increase their spending in real estate, according to two unrelated surveys.

More than 70 percent of investors and developers polled by Jones Lang LaSalle said they planned to bump up their commitment in real estate compared to 2009. Twenty percent said they would increase their spending by more than 75 percent.

Noting a decline in the number of yachts parties, pundits described this year’s MIPIM conference in Cannes as a “muted affair” and “losing its fizz.” Attendance was about 18,000, according to event organizers, about the same as 2009 but a steep drop from the 29,000 that swarmed the croisette in 2008.

Nevertheless, MIPIM remains the premier European gathering for the commercial property industry, the one event sure to attract all the top players.

By an overwhelming margin, investors chose London as the world’s top commercial property market, according to an annual survey by Washington D.C.-based Association of Foreign Investors in Real Estate.

London moved past Washington D.C. and New York, with Paris and Tokyo rounding out the top five. In the 2009 survey, London was second, in a virtual dead heat with New York and Washington, but this year respondents chose London by a wide gap, the association reports.

Fifty-one percent identified the U.S. as the best opportunity for capital appreciation, compared to 37 percent in 2008 and 26 percent in 2007. Two-thirds of respondents said they planned to increase their U.S. investments in 2010.

The annual survey reflects the responses of 200 AFIRE members, who control more than $842 billion in real estate.