As investors observe a shift in economic conditions, they are funnelling more capital into commercial property, particularly targeting the Asia Pacific region, research by real estate specialist, Jones Lang LaSalle, said.

The report, titled The Advancement of Real Estate as a Global Asset Class, estimates that the direct commercial real estate transactional market will exceed $1 trillion per year by 2030, compared with 2012 volumes of  nearly $450 billion.

Economic Shift

A noticeable economic shift since 2008 has been the surge in popularity of bond markets, as investors sought supposedly safer, alternative assets at a time when stock markets were volatile.

However, now that returns for sovereign bonds are near record lows, the chase for yield in an unpredictable environment continues, highlighting the attractions of property. The yield spread between real estate and sovereign debt remains high, so real estate offers generous compensation to investors for the additional risk associated with real estate, the report said.

More specifically, the firm said investors are targeting a limited number of super-prime assets, mainly office and retail buildings in major gateway cities, that have emerged as the most desired assets for some institutional investors intent on owning stable, best-located assets, ideally fully leased to desirable tenants. Consequently, competitive bidding has driven prices on many of these properties up to and beyond pre-crisis levels.

Asia Pacific

However, it seems high prices do not concern wealthy Asia-Pacific investors, and they have considerable financial firepower. The region is home to over 45,000 ultra-high net worth individuals with a combined wealth of $6.7 trillion, the JLL report said.

Asia-Pacific outpaced other regions in real estate activity since the global financial crisis, achieving a commercial real estate investment volume in 2012 equal to 77 per cent of the previous peak reached in 2007. By comparison, the Americas only reached 62 per cent of that level, while Europe's investment volume is 46 per cent of its peak amount.

“The Asia-Pacific region is emerging as the long-term winner in the global contest for investment capital, boosted by the rise of domestic pension funds and private wealth,” JLL said.

Since 2008, strong economic growth that contrasted with recessionary contraction in Europe and North America has fuelled real estate activity. Though most western institutions are underweight of Asia-Pacific assets relative to the size of its real estate markets, JLL expects to see confidence improve in the long run.

The firm predicts portfolios will increase weightings of Asia-Pacific assets as high savings rates, rapid urbanisation, the inexorable rise of the middle classes and evidence of improving transparency, make the region more attractive to the West.