DTZ Insight

The Great Wall of Money

Capital shifts to attractive markets

13 October 2010  We estimate there to be US$281bn of capital available to target

Contents
Introduction
New capital available in 2011
Impact on transaction volumes
Appendix 1: Methodology
direct real estate globally in 2011, a 22% increase on the revised
US$229bn that we estimated to be available last December. Our
revision takes into account more detailed information on fund
commitment periods (Figure 1).
2
3
 The biggest increase was in the Americas, predominantly the
6 US, where the amount of new capital targeting the region has
7 increased 54% in the last nine months. This is not a big surprise
as the US is the most attractive market as identified in our
recently launched DTZ Fair Value Index™ analysis.

 Despite differing growth rates both Asia Pacific and EMEA

Author
Nigel Almond
Forecasting & Strategy Research
+44 (0)20 3296 2328
nigel.almond@dtz.com
regions remain relative winners having a greater share of capital
targeting their regions than has been raised locally.
 Diversification remains a key focus for investors both in terms of
sector and geography, despite a near 50% increase in the
proportion of single country funds over the last nine months.

 We expect the increase in available capital to drive global

investment volumes higher during 2011, especially in the US. We
Contacts also expect an increase in cross border activity.
David Green-Morgan
Head of Asia Pacific Research  Transaction volumes will increase through a recovery in value
+61 2 8243 9913 and through natural churn in the market as investors trade to
david.green-morgan@dtz.com realign portfolios and seek to benefit from the recovery in values.
Magali Marton Figure 1
Head of CEMEA Research Available capital by region, 2011
+33 1 49 64 49 54 % change
US$bn
magali.marton@dtz.com
281 +22%
300
Tony McGough
Global Head of Forecasting & 250 229
71 +29%
Strategy Research
+44 (0)20 3296 2314 200 55
tony.mcgough@dtz.com 97 +54%
150 63
Hans Vrensen
Global Head of Research 100

+44 (0)20 3296 2159 112 112 0%

50
hans.vrensen@dtz.com
0
Revised Dec 09 Oct 10

EMEA Americas Asia Pacific

Source: DTZ Research

www.dtz.com 1
The Great Wall of Money

Section 1: Introduction
In December 2009 we launched our report “The great The impact has been to reduce the amount of new capital
wall of money” which tracked new capital targeting direct that we estimated to be available by 27% from US$315bn
real estate globally and the opportunities this capital was to US$229bn. A summary of the changes are outlined in
targeting. Table 1 below. A more detailed review of our
methodology is provided in Appendix 1.
This report provides an update to this earlier analysis
based on changes in our database and some Table 1
refinements to our assumptions. The key change
concerns the period in which we estimate funds will be Change in available capital, December 2009
invested. Original Revised % change
EMEA 156 112 -28%
Revision of December 2009 estimates
US 74 63 -15%
In our previous analysis we assumed a two year Asia Pacific 85 55 -35%
commitment period. Based on new evidence we
understand that most funds will draw down capital over a Global 315 229 -27%
longer period of 3-5 years. Accurate data on Source: DTZ Research
commitment periods across all investors is not available.
However, given that 60% of money raised to date was by In this report we outline the level of new capital available
funds which have closed in the last three years, we in 2011 both on a global and regional basis and compare
consider an average three year period to be appropriate. this to our previous results. We also provide a more
detailed breakdown of the investors and opportunities
this capital is targeting and highlight any variations with
our previous study. Finally we consider the implications
of this new capital on the market.

www.dtz.com 2
The Great Wall of Money

Section 2: New capital available in 2011

Figure 3

Increase in capital targeting US and APAC Investor target

100%
Based on our updated analysis we now estimate there to
90%
be US$281bn of new capital available for investment in 24% 25%
80%
direct real estate globally in 2011. This represents a 22%
70%
increase on the revised US$229bn that we now estimate
60% 27%
to have been available in December 2009 (Figure 2). 35%
50%

Figure 2 40%
30%
Available capital by region, 2011 49%
20% 40%
US$bn % change
10%

350 0%
315 Revised Dec 09 Oct 10
300 281 +22%
85 EMEA Americas Asia Pacific
250 229 71 +29%
Source: DTZ Research
200 74 55

97 +54%
150 63 The attractiveness of Europe has changed little since
100 December 2009 and it is therefore of little surprise to see
156 no increase in available new capital. Although Asia
50 112 112 0%
Pacific has become more attractive it is less so relative to
0 the US, therefore we are not surprised by the relatively
Original Dec 09 Revised Dec 09 Oct 10 smaller increase in newly available capital.
EMEA Americas Asia Pacific
Figure 4
Source: DTZ Research
Change in DTZ Fair Value Index ™ by region
On a regional basis, the majority of capital (US$112bn) Index
continues to target the EMEA region, unchanged on our 100
revised December 2009 figure. A further US$97bn is 90
targeting the Americas (mostly the US) representing a 80
54% increase on December 2009. A further US$71bn is 70
targeting the Asia Pacific region, a 29% increase on our 60
revised December 2009 figure. 50
40
Capital shifts to most attractive markets 30
20
Of note is the increase in capital targeting the Americas 10
region, mostly the US. Its share of available capital has 0
increased from a revised 27% to 35%. This was largely Jun 09 Sep 09 Dec 09 Mar 10 Jun 10
at the expense of the EMEA region whose share of Europe US Asia Pacific

overall capital slipped from 49% to 40% (Figure 3). Source: DTZ Research

The rapid increase in capital targeting the US fits with our

1
regional Fair Value view . At Q2 2010, the DTZ Fair
Value Index™ score for the US stood at 89, the highest
of the three regions we cover (Figure 4). The score
reflects the fact that most markets in the US are rated as
hot and are attractive to investors. This contrasts with the
situation a year previous when most markets were
considered to be cold.
1
See DTZ Foresight Asia Pacific Fair Value Q2 2010 and European
Fair Value Q2 2010 for more details.
www.dtz.com
Quoted and private property companies return
to the market
Although third party managed funds continue to account
for the majority of capital available in the market today,
their share has reduced from over three quarters to just a
half following strong growth in the amount of new capital
from both public and private property companies.
Of interest is the increase in available capital from
publicly listed companies who now account for 17% of
3
The Great Wall of Money

capital, compared with 4% in our previous analysis. However, there has been a change in the target single
Having recapitalised their balance sheets many of these sectors. Retail is now the most targeted single sector
companies have taken advantage of their access to compared with being the third most popular single sector
capital markets to place them in a better position to target last time. Industrial is the second most popular sector
new opportunities (Figure 5). followed by residential which was the least popular sector.
Offices have fallen out of favour with investors on a
Figure 5 relative basis as has the hotel sector. These changes are
Available capital by investor type at the margin. Overall, single sector funds account for
just 19% of the available capital.
100% 2% 2% GOEFs
2% 2%
90%
3% SWFs
Private property
Near 50% increase in single country funds
14%
13% companies
80% 4%
16% Institutions On a country level, the majority of capital still favours
70%
multiple countries or regions. However, its share of the
60% Publicly listed
17% companies overall market has slipped from 70% to just 56% as the
50% proportion of single country funds has increased by
40% 77% nearly 50%, to 44% (Figure 7).
30% Third party
49%
20%
managed funds Of the capital targeting single countries we have seen
10%
strong growth in the number of funds targeting the US.
0%
This is now the most favoured single target country
Revised Dec 09 Oct 10 attracting 51% of available capital. This supports our
earlier view of the US which is seen by many as the most
Source: DTZ Research
attractive market globally. The UK accounts for a further
17%. China, Australia and India account for a further
Similarly we have seen an increase in capital from private 15% of planned investment with the remainder largely
property companies and individuals who now account for targeting markets in the CEMEA region.
14% of available capital compared to 3% last time.
Institutions have also marginally increased their share. Figure 7
Target geography
Investors continue to diversify across sectors
100% 2% 2% Other AM
6% 4% Other AP
Our latest analysis shows that investors continue to seek 90% 12% CEMEA
diversification across sectors. The majority of capital 80% 21% 3% India
5%
remains directed towards multiple sectors, rather than 56% 7%
Australia
70% 2% China
single sector investments (Figure 6). In fact the relative 2% 70% Multi
60% 9% 17% United Kingdom
proportions are unchanged on our previous analysis. Country
50%
Figure 6 40% 33%

Target property type 30%

United States
51%
20% 44%
100% 30% Single
9% 10% 24% Country
11% Other
90%
12% Hotels 0%
80% 16% Dec 09 Oct 10
70% 15% Office
Source: DTZ Research
21% Multi
60% 81% 81%
Sector 21% Residential
50%
11% New capital available implies growth in cross
40%
21% Industrial border flows
30% 26%
20%
Although the Americas is a winner on the basis of the
Single 23% Retail
10% 16% 19%
Sector 19% increase in capital targeting the region, the actual
0% proportion of capital targeting the region is still less than
Dec 09 Oct 10
the proportion which has been raised in the region.
Source: DTZ Research

www.dtz.com 4
The Great Wall of Money

On this basis both Asia Pacific and EMEA remain relative
winners having a greater share of capital targeting their
regions, than has been raised regionally. This implies an
increase in cross border activity going forward (Figure 8),
albeit off a low base.
On this basis the US is a relative winner given that the
proportion of capital targeting the region (34%) vastly
outweighs its share of transactional activity in the past
twelve months (12%), albeit the absolute amounts differ.

Figure 8
Investor target, domicile and volumes by region

100%
90% 25% 12%
80% 45%
70%
60% 35%
55%
50% 12%
40%
30%
20% 40% 44%
33%
10%
0%
2011 targeted Investor domicile Volumes
Q2 2009-Q3 2010

EMEA Americas Asia Pacific

Source: DTZ Research

This reflects falls in cross border activity as many

investors have retrenched to their home markets
following falling values and uncertainty surrounding the
outlook for the market. Since the peak of the market in
2007, global cross border investment has plummeted by
83% from US$211bn in 2007 to just US$36bn in 2009
(Figure 9).

Figure 9
Global cross border investment volumes
US$bn
250

211
200

150

100 89

50 36

0
2007 2008 2009

Source: DTZ Research

The proportion of capital targeting Europe is in line with

its share of global investment volumes in the past twelve
months. In Asia Pacific the proportion targeting the region
(25%) falls well below its recent share of activity (45%).

www.dtz.com 5
The Great Wall of Money

Section 3: Impact on transaction volumes We also see increased cross border activity, especially
towards the EMEA and Asia Pacific regions, which are
Over the first half of 2010 global investment volumes attracting a higher proportion of capital relative to the
totalled US$133bn, double their level in the same period amount raised in those regions.
of 2009, which marked the low point in the current market
cycle (Figure 10). With transactional activity in the twelve months to the end
of June 2010 already totalling US$260bn (Figure 11), it is
Figure 10 likely that overall volumes will surpass the US$281bn of
new capital we estimate to be available.
Global transaction volumes
US$bn Figure 11
180
160
Global transaction volumes v available capital
140 US$bn
120 300
281
100 $133bn 260
250 239
80 $67bn

60 200 193
178
40 159
150
20
- 100
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
50
2005 2006 2007 2008 2009 2010

-
Europe US Asia Pacific
2009.2 2009.3 2009.4 2010.1 2010.2 2011 new
Source: DTZ Research, REIS, Propertydata capital
Annual volumes to period ending available

Europe US Asia Pacific

However the growth in activity across regions has been
uneven thus far. In Asia Pacific growth was three-fold as
volumes rose from US$21bn in H1 2009 to US$64bn in
H1 2010. Across Europe investment activity in the first
half of 2010 totalled US$54bn, 86% higher than in the
same period of 2009.In contrast volumes in the US have
remained flat at just US$15bn in each of the respective
periods.
With the weight of new capital targeting direct real estate
markets in 2011 increasing on the amount we estimated
to be available previously, then we would expect to see a
further increase in transaction volumes going forward.
Source: DTZ Research, REIS, Propertydata
This reflects the fact that growth in transactional activity
will not just be driven by this newly available capital. We
will also see activity increase through recovering capital
values and natural churn in the market.
Natural churn occurs when existing investors, even those
without new capital, trade to realign their portfolios. It also
occurs as existing investors seek to profit from the
recovery in capital values and reinvest this capital in new
opportunities.

However, shifts in the target of this capital over the past

nine months point to variations in growth at a market
level and in the flow of capital.

The rapid increase in capital targeting the US relative to

other markets points towards more rapid growth in
transactional activity across the US. Having seen more
muted growth so far in transactional activity, we believe
the increased available capital, combined with the current
attractive pricing, will drive increased investment activity.
The increase in capital targeting Asia Pacific, combined
with its relatively favourable pricing, compared to Europe,
implies stronger transactional activity in Asia Pacific.

www.dtz.com 6
The Great Wall of Money

Appendix 1: Methodology
Table 2
Our approach to calculating the amount of capital
available remains in line with the five step approach Average LTV by investor type
developed in our previous paper. As a recap we have Equity Debt Total LTV
summarised this approach based on the new numbers in
Figure 12 below. Funds: Stated LTV 37 69 106 65%
Institutions 105 30 135 22%
Figure 12
SWFs 15 0 15 0%
Available capital – step-by-step
German OE Funds 7 4 11 36%
US$ bn
1,000
Funds: Unstated LTV 216 400 616 65%
900 Total (US$bn) 380 503 883 57%
800 3 4 Source: DTZ Research
700
600 2

500 Step 3. US$171bn of capital to be withdrawn

400
300
200
1 5
100
0
Raised Withdrawn Being raised
Blank Equity Debt 2011 2012
Source: DTZ Research
Step 1. US$380bn of equity raised
Our starting point for this research has been to update
our previous database through amending existing
records, adding in details on new or existing funds from
existing and new sources and removing records where
capital has been spent or the record has become historic
for the purposes of this research. In total we have
records on approximately 1,600 individual funds.
Additionally we have utilised our Money into Property
database. On this basis we have identified US$380bn of
raised equity.
Step 2. US$883bn in total raised capital
Assuming an overall LTV ratio of 57% we have estimated
there to be US$883bn in total capital raised. Our overall
LTV assumption of 57% is based on a combination of
stated LTVs from the research we have undertaken and
data from our Money into Property database for
Institutions and German Open Ended Funds. We have
assumed no gearing for Sovereign Wealth Funds. For
funds with no stated gearing we have assumed these to
have similar gearing to those funds where we have a
stated LTV. Our assumptions are summarised in Table 2.
We expect US$171bn of capital will be withdrawn by third
party funds reflecting the fact that some fund managers
have not been able to invest all committed funds. With
60% of capital available today having been raised in the
Available
last three years it is likely that some funds will not be able
2013 to deploy all the capital investors have agreed to provide.
Step 4. US$130bn capital being raised
A further US$112bn of capital is expected to be available
for investment in the next few years.
Assuming a similar 57% LTV ratio as on the raised equity
(see step 2 above), this would equate to US$260bn in
total capital. However, we expect that many of these
plans will not be realised. Therefore, we assume only half
of this capital (US$130bn) to be available for investment
over the commitment period.
In contrast to our previous analysis, as we now assume a
three year holding period in our next analysis, rather than
two, we do not make any further deductions as we did
last year, when we assumed a two and a half year
commitment period for this newly raised capital.
Step 5. US$281bn of capital available
DTZ Research estimates that US$281bn of capital will be
available for investment in commercial property globally
in 2011.
After taking into account the previous steps, we have a
total amount of capital available for investment in the next
three calendar years of approximately US$842bn. Just to
recap, this consists of:

 US$883bn in raised capital

 Minus US$171bn of capital to be withdrawn
www.dtz.com 7
The Great Wall of Money

 Plus US$130bn of additional capital being raised

But, this capital is expected to be available for investment

over a three year period. Therefore, we estimate that a
third will in fact be invested in 2011. This contrasts with a
two-year commitment period we assumed last time.

www.dtz.com 8
 Disclaimer
This report should not be relied upon as a basis for entering into transactions without
seeking specific, qualified, professional advice. Whilst facts have been rigorously
checked, DTZ can take no responsibility for any damage or loss suffered as a result of
any inadvertent inaccuracy within this report. Information contained herein should not,
in whole or part, be published, reproduced or referred to without prior approval. Any
such reproduction should be credited to DTZ.

© DTZ 2010

www.dtz.com