The pace of U.S. home construction in December came in better than expected this morning – although housing starts ended in 2006 at a 15-year low. The better news somewhat brightens a down housing market--which has been offering a mixed bag of investment opportunities. But is there someplace else to go? Yes--as investors are now looking for opportunities in overseas REITS in markets that are growing at a rate the domestic market hasn’t seen in years.
Steve Carroll of CBRE Global Real Estate Securities was on “Squawk on the Street” to talk about his firm’s take on the global REIT market.
The global real estate securities market is mostly made up of REITs (real estate investment trusts) – Carroll says the free-floating market cap of global REITs is almost $1 trillion. That’s up from $250 billion just four years ago and less than half of it is made up of domestic REITs – so its no wonder investors have turned their attention overseas.
So what accounts for this quadrupling of the market since 2003? Carroll says that the proliferation of REIT legislation is mainly why the global market has seen such an upswing. Initial legislative measures had success in Japan, and then swept across Asia – and now Europe is seeing the benefits of a real estate boom. For Carroll’s firm, the magnitude of the global propagation in REITs is obvious: of the 400 properties they hold, less than one-half of them are located in the U.S.
Carroll points to several countries, cities and regions that are especially fruitful– Japan, Singapore, Helsinki (and the entire Nordic region of Europe) and even Canada, which is a small market but is growing fast, Carroll says. He singled out one particular European city as being a particularly good market to invest in: Paris. Some of the finest commercial and industrial properties in the world are in France's biggest city, Carroll says.
So even while commercial real estate is surging in Manhattan (last week the deal was finalized for the most expensive office building ever sold in New York – 666 Fifth Ave. for $1.8 billion), Carroll says investors’ attention is beyond the Big Apple. His firm, in particular, is focused on looking at properties overseas that they think will be able to “generate the strongest earnings and asset value growth as a result of an increase in their occupancy levels, driving their rental rates,” he says.
Carroll says the tremendous growth in overseas REITs – from the U.K. to Japan to Italy – will likely continue to dwarf investments in domestic properties as emerging markets continue to develop across the world.