Reuters: 12 February 2008

NEW YORK, Feb 12 (Reuters) - Credit crises could hobble U.S. and UK commercial real estate sales, potentially putting Asia in the top spot for transactions this year, according to a report released on Tuesday by Real Capital Analytics. 

"Everything is focused on Asia as the new darling of the 2008 investment world," said Steve Williams, the real estate research firm's international consultant.

More than $1.04 trillion of real estate changed hands in deals worth more than $10 million last year, according to the research firm's first Global Capital Trends report.

The 32,000 such transactions in 2007 involved properties in 75 countries and were either sold individually, as portfolios or as part of a real estate investment trust merger or privatization.

The average yield on property acquisition, which determines the value and moves inversely to the price, was 6 percent in 2007, ranging from a low of 4.4 percent in Hong Kong to a high of 7.4 percent in Canada.

"The mobility of capital and rise in cross-border acquisitions is resulting in a convergence of property prices across markets," the report said.

Property and portfolio transactions accounted for 42 percent of volume last year, as investors loaded with cheap debt snapped up office, hotel, apartment and other properties in the first part of the year.

The most notable was Blackstone Group LP's (BX.N: Quote, Profile, Research) purchase of Equity Office Properties Trust. That accounted for a total of $66 billion from the initial sale to Blackstone and then Blackstone's subsequent sales of some of the same properties.

U.S. properties accounted for half the global sales as measured by currency or number of properties, while British properties accounted for 20 percent.

But those sales fell off significantly in the second half of the year as troubles in the residential lending market spread across credit markets. 

"With the U.S. and U.K. markets uncertain as the result of illiquidity of the credit crises all eyes are around Asia," Williams said.

A good part of the investment in Asia is expected to be in the form of takeovers or stakes in property or development companies, William said.

"Asia is a fertile ground for partnerships and for navigating through the regulatory system that Westerns may not be familiar with," he said.

Sovereign funds and other cash-rich investment pools are expected to be active in Asia, Williams said.

China is expected to continue to see the lion's share of real estate activity.

In 2007, China was the most active investment market for commercial property in Asia, accounting for 40 percent of property acquisitions throughout the continent. About $50 billion of the $60 billion of commercial property sales in China involved land and development rights.

But since most of the property acquisitions involved construction, $60 billion is likely just a fraction of investment since construction costs are not included.

"All the construction costs are worth billions and billions of dollars, and that's undocumented capital," said Dan Fasulo, Real Capital analytics managing director.

Half the land acquired by developers globally last year was located in China, according to the report.