"Given that the real estate sector's investment characteristics--current income combined with long-term appreciation--closely match SWF requirements," said Ray Torto, chief global economist at CBRE, in a statement. "We expect them to increase their weighting of commercial property to approximately 7% of their total assets. With nearly $4 trillion of total assets currently under SWF control, a 7% allocation would mean worldwide commercial real estate investments totaling $280 billion. To put this number in context, the entire US institutional-grade property portfolio owned or managed by investment managers and plan sponsors is valued at approximately $330 billion today."
Estimates show that the SWFs could reach total assets of $12 trillion by 2015, according to CBRE, which at 7% allocation implies SWFs would make approximately $725 billion of net property investments over the next seven years. According to CBRE, the target allocations can be achieved if the SWFs diversify future investments widely across geographies.
"Although SWFs are likely to continue to focus on core real estate product in major markets," says Michael Haddock, director EMEA research at CBRE, in a release, "they will have to put capital to work in new geographies and emerging sectors."
Haddock said that favored markets are expected to include Japan and the UK, along with "other countries with currencies that are not held in the SWF's foreign reserves." According to the report, the break-down of the net investment distribution will be $40 billion to $50 billion in direct real estate; $20 billion to $30 billion in unlisted property funds; $5 billion to $10 billion in listed property companies; and $20 billion to $25 billion in debt.
"SWFs will have to look to both the indirect investment market and the debt market to fully meet their objective in the real estate sector," Haddock continues, in the release. "It is also very possible that we will see outright acquisitions of property companies--listed and unlisted--as a way of assembling a significant direct real estate portfolio rapidly, as well as acquiring the property management infrastructure to go with it."
Opportunity could abound for multiple countries looking to land investment. The BRIC countries--Brazil, Russia, India and China--are still foremost in investors' minds, despite some market trepidation and obstacles to deal-making.
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