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With offices across 70 countries in both mature and emerging economies, JLL's global CEO, Colin Dyer, has his finger on the pulse of the global property market. He talks about where the markets are headed this year.
- How was the transaction activity last year?
The level of buying and selling commercial real estate was a record, surpassing 2007 in terms of total transactions. Around $875 billion (Dh3.21 trillion) to $900 billion was transacted this year. These have been around the world. The biggest markets for commercial real estate transactions are in London, New York, Tokyo and Paris, in that order. But transaction activity has been heavy everywhere, no one region has been stronger than others.
- Is the property market more global now than it ever was? How does it reflect in cross-border transactions?
Of the $875 billion or so of sales last year, about 45 per cent of the money crossed borders, and that is an all-time record. Money flows are very truly international. We've Asians buying in Europe and the US. You've US companies and private equity funds buying in Europe and rest of the world and European traditional investors—so it's in all directions. The added weight is also the sovereign wealth funds (SWF), many of which are based in this region. You have Norwegian SWFs, African SWFs, funds from China, Asia and South East Asia all adding to the mix.
The reason there is so much activity in real estate is that the returns, although they've been compressed by price appreciation, are 4 per cent in major cities around the world. That is still a better result than the 1-2 per cent in fixed income markets.
- You've a long-term presence in emerging markets. What insights can you share on the rising importance of these markets?
We're a global business. That means we're in 70 countries around the world. By definition that means many of our countries will be mature and many will be in developing markets; it is important to have both, not either or.
To me, being strong and having a leading position in China for the long term is equally important as being the leader in Germany, for example. We've invested very heavily between 2004 and 2010 in expanding our footprint. We've expanded from two to 13 offices in China. In 2004, we had no offices in the Gulf or Middle East and now we have six, because we want to be more present in the emerging markets. It's a long-term investment.
Very often they have losses in the early years and that doesn't matter. Once we start in a country, we don't move backwards. We've always stayed even if times are difficult, as it was in Dubai in 2008-09. We don't leave. We haven't left Russia in the last few years, despite the problems in Ukraine. Once we're into a country, we're very committed and we grow continuously for the long term.
- What are the areas of focus this year?
For our business, we will continue to grow in the US and Europe, but also continuously invest behind growth in Asia and increasingly in Africa. We're going to continue opening offices in Africa. We opened in Cairo in 2006, in Morocco in 2011 and in South Africa in 2011. We opened this year in Nairobi and Lagos. We'll continue probably opening one office a year across African countries. Its principle driver is that we're supporting our corporate clients — banks and energy companies who're expanding across Africa. It's a cautious expansion for the last continent developing from the real estate perspective.
- How will an anticipated economic slowdown impact real estate?
In fact, 2016 will be very similar, maybe even stronger in sales. The world economy is growing at 3-4 per cent across the globe. Of course, for geopolitical reasons this region is difficult and Europe has still not taken off after recession. Asia is a bit slow because of the China issues. But there is still growth.
This is the period of the cycle when companies are expanding. Most importantly, the growth in investment is being driven by the amount of equity that is coming from all the sources — the ones that want to get into an asset class that's got a good level of return compared with fixed income, and is safe and liquid enough to be resaleable in the future. Despite concerns people have about an incoming slowdown, we see good fundamental demand.
- What are the global trends you see in property markets. The last couple of years saw trophy assets from governments being put on the market? Will SWFs be as active?
I see a continuation of those trends. That is the most important thing — continued weight of money moving into real estate, international capital flows remain very important, sovereign wealth funds continue to target real estate. Because of the oil price developments, there may be perhaps a little less Norwegian and Middle East SWFs, which are heavily based on oil flows and oil surpluses. That will perhaps diminish a little, but otherwise we expect to see a continued confidence in real estate. That is a very important trend that is driving up activity levels and will continue to drive up prices.
- Will investors from Iran throng the market, replacing the Russians?
Russian buyers have been driven by essentially capital flight from Russia. In other words, there is a lot of money in Russia and it is concentrated in relatively few hands and they want to spread their risk.
I don't think Iranian money is as concentrated in a few hands. It's all domestic Iranian money. I think there will be much less of an impact from Iran than there has been from Russia. By the way, I think Russian capital is going to continue to be exported from Russia over the next 12-18 months.
- Dubai and to some extent the UAE are increasingly vulnerable to global influences. Are there other markets that compare?
Singapore and Hong Kong are the ones to compare. Those are open economies, largely driven by a mixture of tourism and trading and business hubs for their region. At the same, these are places where people come in heavily when the regional economy is good. They will be tempted to leave or to cut back their activity quite sharply when the economy is slow.
There are very strong similarities between Hong Kong, Singapore and Dubai, which is actually a compliment to Dubai. Twenty years ago you wouldn't have been able to say that about Dubai. The fact that one now can compare those two with Dubai is a compliment to the pace and amount of development that has taken place, and the fact that Dubai has become not only a regional but a global transport hub too. All of these things have come very, very quickly.
- You visit Dubai once every two years. Can you compare the market as you have seen between visits?
If you go back to 2011, I came here in September 2011 and in December 2013. In September 2011, there was a lot of negative sentiment in Dubai. There wasn't that much business activity. Our own revenues were low. We were only just beginning to pick up again.
In 2013, confidence had returned. Expansion was taking place again. Developments that had been stopped were being completed. There were not very many cranes in Downtown Dubai. In 2015, there is a lot of confidence. I know there is a pause in the market but there is a lot of confidence in spite of the regional trouble. There is a lot of construction happening, in town, along the edge of the town. People can touch the effect of the World Expo 2020, the new airport — we know these things are real.
I think Dubai is in a good position because whereas the rest of the world could expect a recession between 2015 and 2020, Dubai will probably accelerate because of the effect of the Expo in driving investment, tourism and infrastructure further.
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Source: Shalini Seth, Special to Property Weekly